State Street Report Shows Big Slump in April ETF Inflows

A slowdown in ETF adoption threatens State Street Global Advisors' (STT) full-year forecast of $1.3 trillion of inflows, according to the firm's latest "US-Listed ETF Flash Flows" report.

Exchange-traded funds recorded $62 billion of inflows in April, marking the lowest monthly total in a year as investors retreated from riskier assets amid mounting volatility from escalating trade tensions. 

Despite global equities posting gains in April, U.S. stocks suffered losses as trade war volatility had a concentrated impact on domestic markets, reshaping investor sentiment and positioning across multiple asset classes.

Gold ETFs attracted $3.8 billion, ranking as the 10th-highest monthly inflow ever for the category, while equity ETFs managed just $32 billion, their 40th-best month historically.

"The redesign and paradigm shift of global macroeconomic modalities just pressurized markets," wrote Matthew Bartolini, head of Americas ETF research at State Street Global Advisors in the report. He compared the effect of recent tariff announcements to carbonated water, noting, "The infusion of the exogenous tariff variable, like CO2 gas being dissolved in spring water to form carbonic acid, transformed the market's general properties."

Investors Seek Safety with Defensive Plays

The major reversal came from sector ETFs, which experienced their worst-ever monthly outflows at $11 billion. The selloff was widespread, with only the defensive utilities sector managing inflows of $171 million. The outflows pushed the three-month rolling total to $21.5 billion, the second-worst on record.

Credit sectors also faced pressure, with a record $15 billion fleeing from investment-grade corporate bonds, high-yield bonds and bank loan ETFs. The bank loan and collateralized loan obligation category saw its largest-ever outflow of $5 billion, while investment-grade corporates shed $4.6 billion, also a record.

According to Bartolini, these outflows represent "a complete reversal of the trend leading up to April, as investors were visibly overweight credit, reflecting a bias toward an environment of rising growth." That economic environment now appears less likely given recent data and the potential impact of tariffs on consumption.

Cautious investors poured $19 billion into ultra-short and short-term government bond ETFs in April, marking their second-largest monthly inflow ever, behind only the $20.2 billion recorded during March 2020 at the onset of the pandemic. The three-month rolling total reached a record $34 billion, exceeding the previous high of $27 billion set in 2022 during aggressive Federal Reserve tightening.

US Bias Persists Despite International Outperformance

U.S.-focused ETFs collected $32 billion in April, accounting for 82% of all equity flows despite international markets outperforming their U.S. counterparts. Small-cap ETFs saw a record $6 billion in outflows, while low-volatility factor ETFs gained $850 million, ending a 23-month streak of outflows.

Bartolini cautioned that market uncertainty may persist, noting, "The pressure facing markets may not dissipate as quickly as carbonic gases leave an opened can of seltzer" given the "recalibration of economic norms" toward higher tariffs and more confrontational trade negotiations.