ETF Flowdown: Off to the Races in 2025

One month into 2025, and ETFs are already off to the races, hauling in over $100 billion in net inflows in January. Hefty gains across the board reflect continued bullish sentiment on the stock market overall. So far, equity ETFs have been the stars of the show, raking in $56 billion in net inflows, as many look to rebuild their risk positions in equities. There have also been sizable inflows into the $8 trillion money markets, given renewed uncertainty around the Federal Reserve.Wall Street has taken on a pro-risk attitude amid economic resilience and in the wake of the presidential election. Yet a shifting Fed mentality, trade war uncertainties, and AI cost concerns threaten to derail that confidence. But the so-called January barometer tells us that as goes January, so goes the year. According to BofA Global Research, over the last 97 years, when stocks are up in January, 80% of the time the rest of the year ends in the green. The S&P 500 rose 2.6% in January, though February is off to a rockier start.Bulls Piling Into U.S. Equity ETFsWe’ve stepped into 2025 with a new administration, but arguably the same old story on the flows front. Plain-vanilla darlings just keep powering through, and familiar names topped the flow charts. Once again, the Vanguard S&P 500 ETF (VOO A) continues to dominate the leaderboard, reeling in more than $21 billion in net inflows for January, marking a record monthly high. Now set to overtake SPY as the largest ETF, VOO has already pulled in more than 20% of inflows for the full year. This all comes ahead of Vanguard’s announcing its largest-ever fee cut in history.Financials and large-cap growth and tech ETFs resurfaced as the month’s biggest sector leaders. Investors poured $2 billion to $3 billion into the Invesco QQQ Trust (QQQ B+), its cheaper counterpart to the Invesco Nasdaq 100 ETF (QQQM B), the Vanguard Growth Index Fund (VUG A-) and the Vanguard Information Technology ETF (VGT A), along with the Financial Select Sector SPDR Fund (XLF A). Meanwhile, cost-conscious retail investors continue to flock to the SPDR Portfolio S&P 500 ETF (SPLG A), the cheapest on the market, at just 2 basis points. Investors went all in on U.S. large-caps. In fact, a recent survey conducted by Goldman Sachs showed nearly 60% of investors said they expect the U.S. to be the best-performing global region this year. That’s the highest level of confidence reported in eight years.Chasing Alpha With Active ETFsActive ETF strategies from Capital Group, iShares, and JPMorgan continue to shine. In particular, covered call ETFs like the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ A+) and the JPMorgan Equity Premium Income ETF (JEPI A) are still thriving, along with other downside protection products. Following back-to-back robust gains for the S&P 500, many big banks are forecasting single-digit returns in 2025. But even if the market goes up 5%-10%, such covered call products will still allow investors to collect those precious premiums.Dare to Diversify: Broadening Out Beyond the Big CapsBelow the broad-based surface, nearly $6 billion in new money flowed into small- and-midcap ETFs last month. Small caps are still trading at a relatively steep discount and are poised to benefit from domestic reshoring efforts. Also, the DeepSeek drama raised questions about overinvestment in AI infrastructure, offering investors yet another reason to diversify away from Magnificent Seven. As of Wednesday, the Nasdaq is lagging behind all other major indices year-to-date, It’s up 1.2% versus the S&P 500’s 2.3% gain and the Dow Jones’ 4.5% rally. The small-cap Russell 2000 index has also beaten the Nasdaq by 1%. But for now, Fidelity’s product suite, including its Enhanced Small Cap ETF (FESM B+), Enhanced Mid Cap ETF (FMDE B+) and Fundamental Small-Mid Cap ETF (FFSM B) have all put on a strong showing. Strong inflows into iShares midcaps like the iShares Core S&P Mid-Cap ETF (IJH A-), along with the VictoryShares U.S. Small Mid Cap Value Momentum ETF UVSM have also tipped the scales further in favor of the diversification camp.Fixed Income ETFs: High FliersFloating-rate products, which typically float at a spread over Treasury yields with no capped interest rate risk, continue to soar. Markets are expecting just a single rate cut this year, and investors who stay shorter on the duration spectrum can continue to benefit from that extra yield. To that end, there’s been no stopping the flows into CLOs and bank loan ETFs. Both the SPDR Blackstone Senior Loan ETF (SRLN A-) and the WisdomTree Floating Rate Treasury Fund (USFR A-) have seen north of $1 billion in net inflows each. More than $4 billion of net inflows have gone into CLO ETFs this year. A huge chunk of that has gone into the Janus Henderson AAA CLO ETF (JAAA A-), the largest out there, with a solid $500 million in net inflows into the PGIM AAA CLO ETF (PAAA A). BlackRock just launched a new CLO ETF of its own, the iShares BBB-B CLO Active ETF (BCLO), as the AAA tranche grows increasingly crowded.Another $1 Trillion in 2025?ETF inflows could be chasing another $1 trillion year, though it might prove tough to get a repeat performance. Still, the strong start to 2025 already proves investor ETF resilience and enthusiasm remain high. As they steadily close the gap with mutual funds, ETFs will no doubt play a pivotal role in shaping the future of investing, making 2025 a year to watch closely. For more news, information, and analysis, visit VettaFi | ETFDB.