July Flash Flows: Fragile or Sturdy? Bullish or Worried?


Head of SPDR Americas Research

  • ETFs took in $52 billion in July, their ninth month in a row with over $50 billion, pushing 2021 figures to a new annual record (+$518 billion) in just seven months and could hit $800 billion.
  • With a bullish but worried sentiment, both defensive sectors and quality factor strategies took in their second highest flows ever (+$5 billion and +$2 billion).
  • Bond ETFs added $17 billion in July, fueled by a near-record-setting $3.6 billion from TIPS ETFs. Loan flows slowed but were positive for the tenth month in a row.

LEGO®, the Danish interlocking toy bricks, can be used to construct imaginative designs. The bricks themselves are not overly strong. But when placed together in specific ways, they can create sound structures. A bridge can be built that can hold up to over 1,000 pounds, for example.1 Yet, make a mistake or lose a piece under the couch, and your design becomes unstable and apt to break.

The fragility and strength of LEGO designs, and the bricks themselves, is like the recovery — an elaborate and intricate structure that requires specific actions (i.e., bricks) to be placed in the right order by multiple parties in order to be successful. Together they are stronger than when just by themselves. Miss a step? You’ll have to go back 20 pages to find out where one little piece suddenly ruined a significant amount of hard work. Sound familiar?

The slowing pace of vaccines combined with the rising case rates from the Delta variant has set the recovery back. Once again, we are watching sporting events that feature no fans (the Olympics), mask mandates are returning, and lockdown/capacity restrictions are being enforced in certain regions around the world. All of this will have knock-on effects for confidence and the trajectory of the economy.

Yet, we have witnessed, and continue to see, the other helpful instructions for this recovery build: supportive monetary and fiscal policies aimed at repairing growth and offering stability. These conflicting trends are one of the reasons why investors have begun to express a bullish but worried mentality, leading to a month where global equities notched new all-time highs while volatility spiked and credit spreads widened.

Flows Hit Records

Even with the presence of new and more dangerous COVID-19 variants, markets rallied and investors continued to deploy capital into ETFs at an elevated pace. Global equities registered their sixth consecutive month of gains in July, their longest stretch since 2018. And ETFs took in over $50 billion last month, their ninth consecutive month of more than $50 billion of inflows — a record streak.

The flows in July pushed full-year 2021 figures to $518 billion, a new calendar record in just seven months. With such dazzling flow totals in a short period of time, it begs the question of how high flows could get in 2021 — particularly if ETFs can make it into the four commas club (more than $1 trillion of flows).

While outlooks are worth the paper they are written on, the below shows a composite approach to ascertaining what may be possible in 2021. Five different outlook models were used to estimate potential 2021 flow totals:

  1. trailing 12-month average
  2. trailing 36-month average
  3. quarterly average figure for historical Q3 and Q4 to reflect seasonality
  4. average Q3 and Q4 figure that also includes the increase that Q1 and Q2 2021 had versus their historical average to account for cyclicality but also the current 2021 pace
  5. 2021 average

A final composite average of these five metrics was tallied to get a full-year 2021 estimate of $797 billion — a strong figure and one that would be 60% higher than the $505 billion from 2020. Depending on the trajectory of the market and the vibrancy of the economic and societal recovery, this outlook is well within reason. And if flows do come close to this level, it would mean that there would be more flows into ETFs in one year than in the last nine years combined for mutual funds — a testament to how ETFs are the vehicle of choice for investors today.

ETF Flow Outlook

ETF Flow Outlook

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“‘Lego Masters’: Oregon team tackles a bridge-building challenge, tries for the ‘Golden Brick’”, OregonLive March 2020: https://www.youtube.com/watch?v=G9WT6TB15yE.


S&P 500® Index
A market-capitalization-weighted stock market index that measures the stock performance of the 500 largest publicly traded companies in the United States.

A market capitalization-weighted index designed to provide a broad measure of equity market performance throughout the world.

Characterized by firms with strong balance sheets and high profitablity

Smart Beta
A term for rules-based investment strategies that don’t use conventional market-cap weightings.

Originally Posted on August 5, 2021 – July Flash Flows: Fragile or Sturdy? Bullish or Worried?


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