August ETF Flows: Investors Prepare Portfolios for September's Historical Volatility

Market Overview

August proved to be a pivotal month for ETF flows globally, with investors strategically repositioning their portfolios amid significant macroeconomic developments and market volatility.

The month was characterized by a clear flight to quality and strategic defensive positioning, even as major indices touched new highs. Investors demonstrated sophisticated tactical allocations, responding to Federal Reserve policy signals, regional economic divergences, and sector-specific disruptions across global markets.

European ETF flows revealed a complex investment landscape that reflects both caution and selective optimism regarding the region's uneven economic activity.

Large outflows from IEAC may suggest investors are shifting away from traditional corporate credit, possibly toward short-duration or floating-rate instruments like XEON. Despite this rotation, corporate bond ETFs broadly attracted substantial capital during the month as global credit spreads reached their lowest levels since 2007.

A notable divergence appeared in equity ETFs. German large cap funds benefited from positive sentiment as manufacturing in the eurozone's largest economy showed signs of exiting a three-year downturn. However, outflows from broad European and German equity ETFs (FEZ, EWG) indicate potential profit-taking or risk-off sentiment driven by geopolitical or economic concerns. Similarly, broad European equity vehicles like Euro Stoxx 50 and MSCI Europe Quality funds experienced outflows, possibly reflecting investor wariness about regional inflation divergences across the eurozone and political instability in key economies that could hamper the continent's economic trajectory.

The sustainable ETF space displayed interesting patterns as well. While RIEG attracted new capital, EUSRI experienced outflows, likely due to differences in ESG methodology or investor preferences. More broadly, climate-related funds saw surprising inflows despite significant headwinds in the renewable energy sector, suggesting investors may be hunting for value opportunities following price corrections in companies like Danish wind energy producers.

This mixed picture highlighted investors' increasingly selective approach to European markets as they attempt to balance promising economic recovery signals against persistent regional challenges. The divergence between specific sectors and broader market vehicles suggests a tactical rather than strategic positioning in the current environment.

In the United States, August flows revealed a notable rotation out of semiconductor and technology ETFs despite the sector's strong year-to-date performance. This shift reflects growing investor nervousness about potential valuation corrections as seen earlier in the month.  The Vanguard Information Technology ETF (VGT) exemplified this trend, experiencing nearly $3 billion in redemptions in a single day, the largest outflow among all ETFs during that session.

Beneficiaries of this rotation included broad market S&P 500 ETFs and small-cap stock funds, which attracted significant inflows as investors positioned for anticipated Federal Reserve interest rate cuts following encouraging inflation data. The Russell 2000 Index posted its best relative performance versus the S&P 500 since July 2024 during August, suggesting renewed optimism for smaller companies that typically benefit from looser monetary policy.

Looking Forward

As we enter September, historically a challenging month for market returns, investors appear to be maintaining a cautious but constructive stance. The Federal Reserve's upcoming decision on interest rates, scheduled for mid-month, will likely be the pivotal event determining near-term ETF flow patterns.

With over $7.2 trillion still parked in U.S. money market funds, substantial liquidity remains on the sidelines, potentially ready to enter equity markets as interest rates move lower. However, elevated valuations in key sectors and growing concerns about market concentration risks suggest investors will continue their selective approach to ETF allocations in the coming months.

Copyright © 2025 by S&P Global Market Intelligence, a division of S&P Global Inc. All rights reserved.

These materials, including any, data, processing technology, index data, ratings, credit-related analysis, research, model, software, application, or output described herein, or any part thereof (collectively the “Property”) constitute the proprietary and confidential information of S&P Global Market Intelligence or its affiliates (each and together “S&P Global”) and/or its third-party provider licensors. S&P Global on behalf of itself and its third-party licensors reserves all rights in and to the Property. The Property has been prepared solely for information purposes based upon information generally available to the public and from sources believed to be reliable.

Any copying, reproduction, reverse-engineering, modification, distribution, transmission or disclosure of the Property in any form or by any means is strictly prohibited without the prior written consent of S&P Global. The Property shall not be used for any unauthorized or unlawful purposes. Opinions, statements, estimates, projections, quotes and credit-related and other analyses in the Property are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security, and there is no obligation to update the foregoing or any other element of the Property. S&P Global Market Intelligence may provide index data. Direct investment in an index is not possible. Exposure to an asset class represented by an index is available through investable instruments based on that index. The Property and its composition and content are subject to change without notice.

THE PROPERTY IS PROVIDED ON AN “AS IS” BASIS. NEITHER S&P GLOBAL NOR ANY THIRD PARTY PROVIDERS (TOGETHER, “S&P GLOBAL PARTIES”) MAKE ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE PROPERTY’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE PROPERTY WILL OPERATE IN ANY SOFTWARE OR HARDWARE CONFIGURATION, NOR ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ITS ACCURACY, AVAILABILITY, COMPLETENESS, CONTINUITYOR TIMELINESS, OR TO THE RESULTS TO BE OBTAINED FROM THE USE OF THE PROPERTY. S&P GLOBAL PARTIES SHALL NOT IN ANY WAY BE LIABLE TO ANY RECIPIENT FOR ANY INACCURACIES, ERRORS OR OMISSIONS REGARDLESS OF THE CAUSE. Without limiting the foregoing, S&P Global Parties shall have no liability whatsoever to any recipient, whether in contract, in tort (including negligence), under warranty, under statute or otherwise, in respect of any loss or damage suffered by any recipient as a result of or in connection with the Property, or any course of action determined, by it or any third party, whether or not based on or relating to the Property. In no event shall S&P Global be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including without limitation lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Property even if advised of the possibility of such damages. The Property should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions.

The S&P Global logo is a registered trademark of S&P Global, and the trademarks of S&P Global used within this document or materials are protected by international laws. Any other names may be trademarks of their respective owners.

The inclusion of a link to an external website by S&P Global should not be understood to be an endorsement of that website or the website's owners (or their products/services). S&P Global is not responsible for either the content or output of external websites. S&P Global keeps certain activities of its divisions separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain divisions of S&P Global may have information that is not available to other S&P Global divisions. S&P Global has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence. Lowercase nomenclature is used to differentiate S&P Global Market Intelligence PD credit model scores from the credit ratings issued by S&P Global Ratings.

S&P Global may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P Global reserves the right to disseminate its opinions and analyses. S&P Global Ratings’ public ratings and analyses are made available on its sites, www.spglobal.com/ratings (free of charge) and www.capitaliq.com (subscription), and may be distributed through other means, including via S&P Global publications and third party redistributors.