ETF Inflows Surged in Q1 as Stocks Hit Records

Equity ETF inflows had a breakout start to the year amid the S&P 500 having its best first quarter since 2019.

Investors poured $196 billion into exchange-traded funds in the first quarter, according to Bloomberg analysts Athanasios Psarofagis and Andre Yapp. This marked the second best beginning to a year ever in terms of inflows into ETFs, with the strongest still the first quarter of 2021 when investors added $249 billion into ETFs.

Investors pulled money from safe havens like money markets in the first quarter, pouring it into riskier investments like stock ETFs as markets jumped. The S&P 500, as measured by the SPDR S&P 500 Trust ETF (SPY) gained 10% in the first quarter, which was its best quarterly performance since 2019. The tech-heavy Nasdaq 100 index popped 9%, fueled by tech giants such as Nvidia Inc. Investors poured $9.12 billion into the Invesco QQQ Trust (QQQ) over the period.

“Technical indicators show the stock market might be running a bit hot, yet we believe that’s unlikely to stem the robust momentum and breadth of ETF flows,” Bloomberg researchers wrote in their note.

Investors looked past the popular index funds and instead they added cash to more than 1,500 different funds last month, the report said.

“The breadth was [the real story],” Bloomberg ETF analyst Eric Balchunas tweeted, noting that flow has increased steadily over time since 2014.

Bull Market Drives Breadth in Equity

Stock ETFs specifically brought $137 billion in the first quarter, with $76 billion entering the market in March alone, according to data from Morningstar Research. March accounted for 70% of all first quarter ETF flows. The U.S. large-blend category took in the most cash, representing over a fourth of all ETF flows for the first quarter. They took in $32 billion in March alone, according to Morningstar.

The time of year may also be driving inflows, Morningstar researchers noted. Equity inflows tend to be higher in the first quarter of the year as investors put cash from tax refunds and bonuses into the market.

Active ETFs Lead Charge

Investors seem not to be slowing their excitement about active ETFs, according to Morningstar. The category took in about a third of first quarter flows, even though the category makes up less than 10% of the market.

Contact Lucy Brewster at [email protected].