ETF Flows Ride Active Summer Wave

While stocks were treading water in Q3, ETF flows surged again thanks in large part to active ETFs.

Key Takeaways

  • US-listed ETFs gathered a net $107 billion in flows during Q3 of this year.
  • That brings 2023 YTD net flows to $328 billion.
  • Actively managed ETFs accounted for 29% ($31 billion) of overall Q3 ETF flows.

While the tide for stocks went back and forth during the third quarter (Q3), ETFs made another splash. A relatively strong $107 billion in quarterly net ETF flows (ETF inflows less ETF outflows) nearly matched Q2, which was a bounce-back quarter from a slow start to the year. That's helped put ETFs back on pace to bring in a big annual haul, with YTD net flows at $328 billion.

Here were the most notable summer trends in ETF flows.

Active stands out

There's a tidal wave of momentum behind actively managed ETFs, which are ETFs that intend to outperform a benchmark. They've accumulated over $82 billion (25%) of total net flows this year already—an annual record for this category—including $31 billion (29%) of overall Q3 ETF flows.

Moreover, there appears to be plenty of space for active ETFs to wash into: They currently represent just 6% ($439 billion) of total ETF assets under management. To meet growing demand, nearly 80% (114) of the 146 new ETFs that were launched in Q3 were actively managed.

The momentum behind actively managed ETFs has helped underpin flows into equity ETFs (which are predominantly made up of stock ETFs). In the wake of a record-setting Q4 2022, equity ETF flows plunged during Q1 2023. But over the past 6 months, they have rebounded (see ETF flows by quarter chart below).

ETF flows chart

Source: Bloomberg, as of 09/30/2023.

Among the 11 stock market sectors, net flows for cyclical-sector-focused ETFs generally outperformed defensive sector ETFs in Q3. As oil prices bubbled up over the summer, so too did demand for energy sector ETFs. In fact, energy ETFs led inflows after sizeable outflows in 4 of the last 5 quarters. Energy ($2 billion), consumer discretionary ($2 billion), and tech ($2 billion) attracted inflows, while health care (—$3 billion), financials (—$2 billion), and consumer staples (—$2 billion) led outflows (see US sector ETF flows chart).

US sectors ETF flows chart

Source: Bloomberg, as of 09/30/2023.

Bond ETF flows fall again

Another multiquarter trend has been a steady decrease in demand for fixed income ETFs (which are made up almost entirely of bond ETFs). While still positive, bond ETF flows have fallen 3 straight quarters, reaching a multiyear low in Q3.

Among bond ETFs, government bond ETF flows have dominated year to date. Outflows for corporate bond ETFs in Q1 and Q3 sandwiched healthy Q2 flows, resulting in muted flows so far this year for this category.

fixed income chart

Source: Bloomberg, as of 09/30/2023. "Other" consists of preferred, convertible, asset backed, mortgage backed, and bank loan ETFs.

Interested in ETFs?

ETF flows can be a useful tool to help identify market trends, to see where investors are broadly putting their money. If you are exploring the ETF universe, the key is to find those that align with your objectives and risk constraints, regardless of the trend in flows.

Visit Fidelity ETF's to learn more.

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  • All the data presented within are from Fidelity Investments and Bloomberg, as of 07/20/2023. For our purposes, we refer to funds, ETPs, and ETFs interchangeably. These data do not reflect mutual fund data, and investors who would like to monitor the entire fund flow universe may want to consider flows going into or out of mutual funds.
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