July ETF Inflows Slow 2021’s Pace

The U.S. ETF industry crossed the $500 billion mark, but with shivers due to inflation and the delta variant.

Flows into U.S.-based ETFs reached their lowest monthly level since last October, as dual fears of inflation and the COVID-19 Delta variant sending scores of unvaccinated Americans to the hospital tamped the industry’s animal spirits through the first half of 2021.

While not exactly a slouch of a month, figures from ETF.com data provider FactSet show the industry had net inflows of $48.4 billion in July, enough to pierce the $500 billion inflow mark at the very end of the month. Investors have now put a net $520.3 billion into exchange-traded products year-to-date, a figure almost 70% higher than the net flows posted in July of last year.

Major Asset Classes Slow

The drop was most clear in U.S. equities, which fell from $37.7 billion in June to roughly $19 billion in July as investors sought risk-off positions, considered long-term macroeconomic growth rates and readjusted portfolios for the back half of the year.

While less pronounced, international equity inflows slowed from June by just under $7 billion during the two months to $12.9 billion in July, and U.S. fixed income fund flows declined by $2.7 billion from June for a net gain of $12.7 billion in the same time period.

The Vanguard S&P 500 ETF (VOO) was No. 1 on our July inflows chart, ending the month with more than $5 billion flows, further solidifying its status as the largest fund by inflows this year. Closely following VOO was the Vanguard Short-Term Bond ETF (BSV), with inflows of $4.9 billion.

Commodities extended its outflow streak from June, driven in part by the slip in oil prices midway through July connected to worries that the Delta variant’s spread would curb demand for travel.

Quality, Safety Cycles In

The slowdown in aggressive equities was paired with flows into a handful of more defensive positions. The iShares TIPS Bond ETF (TIP) gained $2.6 billion in the month after the headline inflation prints left some inflation hawks shaken.

The iShares MSCI USA Quality Factor ETF (QUAL) also made an appearance in the top 10 gainers of the month, adding just under $1.6 billion in assets after it was shunned by traders with animal spirits. QUAL had net outflows of approximately $1.2 billion year-to-date at the end of July.

Real Estate Funds Struggle

The iShares U.S. Real Estate ETF (IYR) was by far the biggest loser in the month after investors pulled nearly $2.2 billion from the fund. Half of that amount was pulled in the first week of July alone as fears of a broader price bubble emerged among traders and took the fund to a net outflow of almost $1 billion year-to-date.

In comparison, the Vanguard Real Estate Fund (VNQ) recorded a slight gain with $316 million in inflows for the month. However, it has posted net inflows of $4.4 billion year-to-date and likely took some market share from IYR due to it having similar exposures but being cheaper to the tune of 29 basis points.