Bond ETFs See Record Inflows Ahead of Interest Rate Cuts

August ETF Flows Highlights

• Taxable-bond ETFs set a monthly record with $43 billion inflows.
• US small-cap stock ETFs stopped the bleeding with the category group’s first month of inflows since January.
• US stock ETF inflows were choppy this month but ended strong at $39 billion.

August was a hot month for exchange-traded fund flows. Investors piled $118 billion into ETFs in August, the second highest month this year but down $5 billion from July. Bond ETFs captured the lion’s share of inflows, with taxable-bond ETFs pulling in $43 billion. August was the best month for bond ETF flows on record.

Federal Reserve Chair Jerome Powell made a case for September rate cuts, citing inflation near targets and cooling labor markets. Longer-term, higher-duration bonds stand to gain the most from falling interest rates. However, long-term inflation concerns led ETF investors to prefer the safety of shorter and intermediate-term bonds. Indeed, most of August’s bond ETF flows went to ultrashort bond funds, like iShares 0-3 Month Treasury Bond ETF SGOV and Janus Henderson AAA CLO ETF JAAA.

Investors Return to Small-Cap Stock ETFs After Rate-Cut Announcement

US stock ETFs brought in a solid $39 billion despite choppy flows throughout the month. Vanguard S&P 500 ETF VOO continued on its tear by bringing in almost $9 billion in August, the most of any ETF. That puts VOO’s tally at $81 billion in 2025, more than the gross domestic product of most small countries. IShares Core S&P 500 ETF IVV wasn’t far behind with nearly $8 billion in new investments.

Small-cap stock ETFs finally reversed their fortunes after a rough six straight months of outflows. Small-cap stocks outperformed large caps when Powell presented arguments for a rate cut at the Jackson Hole Symposium on Aug. 22. Small-caps stand the most to gain from cheaper financing, since they are more reliant on outside financing. Flows were negative for the month prior to the announcement, but money rushed in after Powell’s speech. IShares Russell 2000 ETF IWM collected most of the new capital in US small-cap stock ETFs, accounting for more than half the group’s August inflows.

Commodity ETFs had their highest month of inflows since March, led by gold ETFs like SPDR Gold Shares GLD and iShares Gold Trust IAU. Gold helps investors hedge against weakening currencies, like the US dollar, as of late. GLD and IAU are the largest gold ETFs, as of August 2025, but there are cheaper options. SPDR Gold MiniShares GLDM charges only 10 basis points, less than half the fees charged by GLD and IAU for holding the same asset. GLDM isn’t as liquid as GLD, which could offset its fee advantage for traders, but GLDM’s lower fees make it the best choice for most investors.

Technology sector ETFs remain popular, as they continue to dominate the sector ETF flows. Technology stocks already make up 35% of the S&P 500, but investors can’t seem to get enough. The allure of new technologies is appealing, and the potential for artificial intelligence seems limitless. But overconcentration in technology could spell heartbreak if the tides turn. As with the dot-com bubble, a few companies make it out in glory, and many more are left withering in the dust.

Pay Heed, All Who Invest: Beware of the Single-Stock ETF

YieldMax ETFs have grown substantially in the past year, which is a disturbing trend. They’ve collected around $14 billion in 2025, landing 11th in US flows by ETF provider despite ranking 30th in net assets, as of Aug. 31. Their bread and butter are covered-call single-stock ETFs, which generate income by selling call options on a reference stock and distributing the proceeds to investors. The income these ETFs produce comes as a trade-off for the stock’s upside. These funds tend to outperform the stock when its performance is stagnant or negative. But investors shouldn’t buy a single-stock ETF if they don’t expect the stock to perform well.

Performance has shown that investors would be better off just buying the stock. Palantir PLTR, for example, has more than doubled this year through August. Investors would have given up 41% of the gains if they held YieldMax PLTR Option Income Strategy ETF PLTY. It’s no surprise that the Securities and Exchange Commission released a warning alerting investors to the potential dangers when single-stock ETFs first hit the market. That warning apparently fell on deaf ears.

Money Continues to Drift Across the Pond

International equity flows remained strong in August, pulling in a fresh $11 billion. Jack Bogle may have argued against the merit of international stocks, but that hasn’t stopped Vanguard from benefiting from the trend. Vanguard owns three of the top five international stock ETFs by inflows. Vanguard FTSE Developed Markets ETF VEA minted a fresh $2 billion in August, the most of any ETF in the category. International stocks haven’t performed well compared with US stocks over the past decade, but they have turned things around in 2025. They’ve outperformed US stocks, and, on top of that, unhedged international ETFs have further benefited from the US dollar weakening.

SPDR S&P 500 ETF SPY had the severest outflows of any ETF, but that doesn’t mean investors are pulling out money long-term. SPY is often used as a trading tool, and its daily flows look like the output of an EKG machine. State Street offers a cheaper version of the fund, SPDR Portfolio S&P 500 ETF SPLG, which is a better option for long-term investors since it charges lower fees and can earn a tiny income from lending securities, something SPY’s trust structure forbids.

Ethereum ETFs Gain as Bitcoin Flounders

Ethereum continued its run of popularity from July, with the largest spot ETF—iShares Ethereum Trust ETF ETHA—pulling in over $3 billion in August. Ethereum’s performance was again a tailwind in August and likely attracted the new flows. Bitcoin’s performance floundered and so did its ETF flows. IShares Bitcoin Trust ETF IBIT still brought in $700 million in August, but that was a steep decline from July’s $5 billion inflow.