US ETFs Break Annual Inflows Record With 3 Months To Go

September ETF Flows Highlights

• US exchange-traded fund inflows surpassed $140.4 billion in September.
• ETFs in the large-blend and foreign large-blend
  Morningstar Categories
  continued to attract large inflows despite performance woes.
• Ultrashort bond ETFs had their second-highest month of net flow ever, attracting $19.7 billion in September.
• Investors fled riskier bond ETFs in favor of those with higher credit quality and shorter durations.
• Treasury Inflation-Protected Securities’ real yield reached its highest level since 2008.
• Roundhill Memory ETF DRAM had its second consecutive month of outflows, losing $1.5 billion.
• IShares Bitcoin ETF Trust IBIT continued to attract positive flows as regulatory news drove performance higher.
• Invesco surpassed $1 trillion in ETF assets under management despite outflows from Invesco QQQ Trust QQQ.

Global stocks and bonds moved in the same direction, weakening in September. The exhibit below shows returns for a sample of ETFs that serve as proxies for major asset classes. A blended global portfolio lost 1.6% last month.

Stock Market Summary

US stocks across the board ended the month in the red, with small-cap stocks having their worst month year-to-date. IShares Core S&P Small-Cap ETF IJR ended the month down 5.5%, lagging the iShares Core S&P Total US Stock Market ETF ITOT by 4.8 percentage points.

Although US large-cap investors fared better than their small- and mid-cap peers, they too had a poor month. Stocks within the financial sector made the largest negative contribution to performance. Specifically, JPMorgan Chase JPM, Visa V, Mastercard MA, and Bank of America BAC each ended the month down by more than 5 percentage points.

International stock ETF investors didn’t fare much better. Both iShares Core MSCI EAFE ETF IEFA and iShares MSCI Emerging Markets ETF IEMG ended the month lower than they started. Strong-performing semiconductor and memory stocks in South Korea and Taiwan have propped up emerging-market ETFs most of the year, but it wasn’t enough to overcome poor performance in China and India this month.

US, emerging, and developed stock markets struggled across the globe as tensions in the Middle East continued to drive energy costs higher and interest rate activity increased borrowing costs. Despite poor performance and rocky consumer sentiment, foreign large-blend ETFs collected $15.5 billion of inflows and US large-blend ETFs rose over $16.8 billion in September.

The only bright spot among the analyst-rated ETFs was iShares MSCI USA Momentum Factor ETF MTUM, returning 5.8% in September when all other ETFs in the group finished the month negative or flat. Despite its strong performance, the ETF lost $5.1 billion through outflows.

MTUM has been one of the group’s most volatile ETFs year to date, frequently landing near the top or bottom of monthly performance figures. Its recent holdings help explain those swings. In September, Advanced Micro Devices AMD, Micron Technology MU, and Intel INTC were the ETF’s three largest holdings, returning 11.1%, 29.9%, and 34.3%, respectively, last month. The ETF targets stocks with strong risk-adjusted price movement, which has naturally led to a portfolio concentrated in artificial intelligence and semiconductor stocks. At the end of September, the ETF had over 54% of assets invested in the information technology sector.

Bond Market Summary

Federal Reserve Chair Kevin Warsh hiked interest rates by 25 basis points in September, sending bond ETF investors into action. Just a few weeks prior, at the Jackson Hole Economic Symposium, Warsh stressed the Fed’s 2% inflation target, hinting at what was coming.

Investors’ main response in August was making a duration bet, favoring long- and short-duration ETFs while selling out of intermediate-term bond ETFs. In September, however, bond ETF flows tell a different story beyond duration.

Four out of the five Morningstar Categories with the largest outflows came from fixed-income categories. Specifically, high-yield bond ETFs lost $1.3 billion, long-term bond ETFs lost $1.4 billion, government mortgage-backed bond ETFs lost $1.5 billion, and corporate bond ETFs lost $3.1 billion. At the same time, ultrashort bond ETFs saw $19.7 billion of inflows. Investors are fleeing higher-risk bond categories and moving to safer, shorter-duration ETFs.

IShares 0-3 Month Treasury ETF SGOV had the second-highest inflow in September of any ETF across all categories, attracting more than $6.2 billion in net flow. Five of the 10 ETFs with the largest inflows were bond ETFs that broadly focused on government, municipal, and short-duration bonds.

Clarity Act Reignites Digital Asset Interest

Cryptocurrencies are back in the spotlight as the Clarity Act, which sought to define and regulate digital assets, failed in the Senate. Despite the holdup, the Commodity Futures Trading Commission and Securities and Exchange Commission have each acted and shown their willingness to regulate without legislative action. For now, the improved clarity surrounding digital asset regulation has helped performance rebound and, with it, brought positive inflows.

IShares Bitcoin Trust ETF IBIT collected $2 billion of inflows in September, ending the third quarter with a net inflow of $4.9 billion. Over that same three-month period, the ETF rose 42.8%, rewarding investors who had bought in while others fled digital asset ETFs. In the first half of 2026, IBIT saw outflows of $1.6 billion and dropped almost 33%.

Uncertainty continues to surround digital assets and the ETFs that hold them as failure to pass the Clarity Act in September pushes it down the road. Bitcoin and other digital asset investors can expect increased volatility surrounding any action related to regulation of these investments.

TIPS Summary

Inflation has remained persistent since 2021 and well above the Fed’s target. US Treasury Inflation-Protected Securities can ease some investors’ inflationary concerns by offering a real yield above the rate of inflation. In September, TIPS’ real yield reached its highest level since 2008, strengthening their case for bond investors who are particularly concerned about inflation.

IShares TIPS Bond ETF TIP shed $390 million in outflows in September, while its shorter-duration sibling, iShares 0-5 Year TIPS Bond ETF STIP, had inflows of $392 million. Both ETFs offer exposure to the TIPS market and had similar real yields. Where they differ is their sensitivity to changes in interest rates. TIP invests in Treasury Inflation-Protected Securities across the maturity spectrum, which in turn led to an effective duration of 6.18 years at the end of September. STIP, on the other hand, has an effective duration of just 2.28 years. Their real yields were 2.84% and 2.78%, respectively.

The four-year difference in effective duration led to a meaningful difference in volatility. Over the past three years, the shorter-duration ETF had 2-3 times less volatility than its longer-duration sibling. This trend of accepting a slightly lower yield for substantially less risk can be seen across the broader bond market.

Invesco Surpasses $1 Trillion in ETF Assets

Despite Invesco’s largest and most popular ETF, Invesco QQQ Trust QQQ, shedding $4.8 billion in September, the firm’s ETF assets under management still rose by $7 billion and allowed the firm to surpass the $1 trillion mark. This makes Invesco the fourth asset manager to accomplish this feat, alongside Vanguard, iShares, and State Street.

The four largest ETF asset managers now manage a collective $12.3 trillion in ETF assets. While mutual fund assets are concentrated among top asset managers, ETFs outdo them in market share concentration. The same top four firms account for 76% of all ETF assets. Even among these asset managers, assets are highly concentrated in a handful of ETFs that have sticky inflows and rock-bottom fees.