ETF Wrap

ETF investors fled cash-like bonds in January, favoring these areas of stocks and fixed income

January tends to be a weak month for ETF flows, according to State Street

MarketWatch illustration/iStockphoto

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Hello! This week’s ETF Wrap gives you a look at where investors put their money to work in January — and where they didn’t.

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Investors in U.S.-listed exchange-traded funds are rotating out of cash-like government bonds this year, with a roughly even mix of flows into stocks and fixed income in January, according to State Street Global Advisors. 

Ultrashort government bond ETFs — whose holdings mature within a year — saw $3 billion worth of outflows in January, as investors withdrew their capital from such funds for a third straight month, according to Matthew Bartolini, head of SPDR research for the Americas at State Street Global Advisors. Investors are moving their money away from such ETFs on the expectation that interest-rate cuts by the Federal Reserve this year will lower the yield on Treasury bills held by the funds, he said by phone.

Investors kicked off 2024 by adding a “subdued” $23 billion in equity ETFs, while allocating $21 billion to exchange-traded funds that buy bonds, he found. Within fixed income, Bartolini said that investors showed a preference for corporate debt, allocating to both investment-grade and high-yield bonds. 

U.S.-listed ETFs tend to start each year on relatively weak footing based on January flows, he said, while noting that “this January was better than most Januaries,” even as overall inflows lagged historical monthly averages.

The U.S. stock market is off to a positive start in 2024 against the backdrop of an economy that has appeared solid, with a historically low unemployment rate as recently as December. Investors will get a reading on January employment numbers on Friday. 

Major U.S. equities indexes posted gains in January, with the S&P 500 rising for a third straight month, according to Dow Jones Market Data. Shares of the SPDR S&P 500 ETF Trust climbed a sharp 1.3% on Thursday, beginning February with gains after rising 1.6% last month, according to FactSet data.

ETFs that buy stocks in the technology sector attracted $3 billion from investors in January, inflows that kept sector funds from seeing net outflows, Bartolini said.

Shares of the Technology Select Sector SPDR ETF are up 4% this year through Thursday, after surging almost 55% in 2023, FactSet data show. 

U.S. stocks captured the most equity ETF flows last month, followed by international developed markets, State Street found.

Investors who allocated capital to equities beyond the U.S. in January demonstrated a “significant” lack of desire for stocks in China, while U.S.-listed ETFs that focus on emerging markets excluding Chinese equities saw inflows, according to Bartolini. 

Meanwhile, actively managed equity ETFs saw record inflows in January, while active fixed-income funds also saw strong flows, he said. Still, active ETFs broadly represent just 6.7% of all U.S.-listed ETF assets under management, according to State Street.

As for fixed-income flows overall, CFRA Research’s head of ETF data and analytics Aniket Ullal said by phone that investors showed more interest in taking credit risk in January by allocating capital outside of U.S. government debt.

As examples of such inflows, Ullal pointed to the iShares iBoxx $ Investment Grade Corporate Bond ETF , Vanguard Intermediate-Term Corporate Bond ETF and the SPDR Bloomberg High Yield Bond ETF . Shares of all three ETFs rose on Thursday.

As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.

The good …

Top performers %performance
Grayscale Bitcoin Trust 7.2
Fidelity Wise Origin Bitcoin Fund 7.0
Bitwise Bitcoin ETF 6.9
iShares Bitcoin Trust Registered 6.8
ProShares Bitcoin Strategy ETF 6.8
Source: FactSet data through Wednesday, Jan. 31. Start date Jan. 25. Excludes ETNs and leveraged products. Includes NYSE-, Nasdaq- and Cboe-traded ETFs of $500 million or greater

… and the bad

Bottom performers %performance
Invesco China Technology ETF -9.8
KraneShares CSI China Internet ETF -5.6
SPDR S&P Semiconductor ETF -5.4
First Trust Nasdaq Semiconductor ETF -5.2
Invesco Semiconductors ETF -5.1
Source: FactSet

New ETFs

  • DoubleLine said Thursday that it launched the DoubleLine Fortune 500 Equal Weight ETF DFVE and the DoubleLine Commodity Strategy ETF DCMT.
  • Vanguard said Jan. 30 it launched the Vanguard Intermediate-Term Tax-Exempt Bond ETF and Vanguard California Tax-Exempt Bond ETF , which provide exposure to municipal bonds by tracking indexes.
  • YieldMax announced on Jan. 30 the launch of the YieldMax Magnificent 7 Fund of Option Income ETF , a “fund of funds” ETF that aims to provide monthly income.

Weekly ETF reads