What Bond ETF Investors’ Shifting Tactics Tell Us About the Fed’s Plan for Inflation

August ETF Flows Highlights

• US exchange-traded fund inflows surpassed $179.4 billion in August.
• Technology ETFs had their second month of outflows in the past year, losing over $2 billion in August after attracting over $67 billion during the prior four months.
• IShares bond ETF flows were telling, with short- and long-duration Treasury ETFs growing larger as their intermediate-term peers bled money.
• Emerging-market ETFs were propped up by strong performance from South Korean and Taiwanese stocks.
• SPDR Gold Shares’ GLD August inflow marked its highest single month of net flow, beating prior major inflow months in February 2009 and April 2020 for the top spot.
• Bitcoin ETFs are back on the upswing after a short hiatus.
• Invesco is on the cusp of $1 trillion in ETF assets under management.

Global stocks and US bonds came back strong in August after a lackluster performance in July. The exhibit below shows returns for a sample of ETFs that serve as proxies for major asset classes. A blended global portfolio gained 1.8% last month.

Stock Market Summary

After a strong start to the year, US small-cap stocks had their second consecutive month in the red as US large- and mid-cap stocks rose higher. IShares Core S&P Small-Cap ETF IJR ended the month down 64 basis points, lagging the iShares Core S&P Total US Stock Market ETF ITOT by 3.3 percentage points.

US large-cap outperformance was driven by some of the largest tech stocks in the US market. Nvidia NVDA and Microsoft MSFT both posted returns above 9% in August. Other leading contributors to iShares Core S&P Total US Stock Market ETF’s great month include Micron MU and Palantir PLTR, returning 16.5% and 51.5%, respectively.

International stock ETFs showed the benefit of global diversification. Vanguard Total World Stock ETF VT, which encompasses over 10,000 stocks across the entire world, beat the iShares Core S&P Total US Stock Market ETF by 37 basis points in August. Additionally, iShares MSCI Emerging Markets ETF IEMG returned 5.3%, driven by strong stock performance in Taiwan and South Korea. It beat all but one of the analyst-rated ETFs included in the table above.

Momentum continued to struggle in August compared with the other factor ETFs. IShares MSCI USA Momentum Factor ETF MTUM lagged each of its factor-focused peers, with its widest performance gap of over 5 percentage points forming relative to iShares MSCI USA Value Factor ETF VLUE. However, much of the ETF’s success was driven by a 20% allocation to Micron, which performed well above the average value stock.

Bond Market Summary

US bond ETF flows were telling in August. Federal Reserve Chair Kevin Warsh delivered his first Jackson Hole Economic Symposium at the end of the month, in which he stressed that a 2% inflation rate is the Fed’s firm target. While he didn’t reveal his plan for the rest of the year, bond investors began to show what they believe is to come through their ETF preferences.

IShares 20+ Year Treasury Bond ETF TLT brought in $5.3 billion in August, reversing direction into positive net flow territory for 2026. During the first half of the year, the ETF bled almost $6 billion. Positive flows for long-duration bond ETFs show a group of investors betting on a rate cut before the end of the year. Because of their longer duration, the bonds within these ETFs are highly sensitive to interest rate movements and would appreciate when a rate cut occurs. On the other hand, if the Fed hikes rates, long-duration bond ETFs would be on the losing side of their duration bet.

Ultrashort bond ETFs continued their broader trend for the year, bringing in $12.2 billion in August. Regardless of what decision the Fed makes in the coming months, ultrashort bond ETFs like iShares 0-3 Month Treasury Bond ETF SGOV shouldn’t have much of any price movement. The ETF brought in over $6 billion alone in August and $37.1 billion since the beginning of the year.

With investors showing favor to both long- and short-duration bond ETFs in August, intermediate-term focused bond ETFs have begun to lose assets. IShares 7-10 Year Treasury Bond ETF IEF lost $5.3 billion in August as its siblings grew larger. Uncertainty surrounding the Fed’s action puts intermediate-term bonds in a relatively unpredictable place as the velocity of action could drive prices more than the decision to hike or cut rates.

Technology Confidence Falters

Technology ETFs had their second month of outflows in the past year, losing $2 billion in August after attracting over $67 billion during the four months prior. This is the technology category’s largest outflow since January 2023. Outflows were led by iShares Semiconductor ETF SOXX and VanEck Semiconductor ETF SMH, losing $3.7 billion and $1.3 billion, respectively. Both ETFs performed well in August, but investors were spooked following large drawdowns in July. Both ETFs have yet to return near their June all-time highs.

Gold and Bitcoin on the Rise

SPDR Gold Shares GLD carried the commodities-focused Morningstar Category to the fifth-highest inflows ranking in August. The ETF has been bleeding assets since its peak in January after gold’s price hit an all-time high of $5,560 per ounce and subsequently collapsed below $4,000 per ounce in July. However, the price of gold has since rebounded along with the ETF’s flows.

The ETF collected $5.8 billion of inflows in August, the highest single monthly inflow in its history. February 2009 and April 2020 were the only months in its history when inflows came close to this level. Despite this, the ETF’s flows were still in negative net flow territory, down $2.3 billion year to date.

IShares Bitcoin Trust ETF IBIT followed a similar pattern. Year-to-date performance has been disappointing, but the second half of August reignited some hope for cryptocurrency investors. The ETF rose 25.5% in August and brought in $2.8 billion in net flows. The strong month brought the ETF’s net flow for the year back into positive territory, collecting $1.3 billion from the beginning of 2026.

Invesco On the Cusp of $1 Trillion

Vanguard and iShares have clear dominance in the realm of ETFs. Their combined market share covers 57% of all ETF assets, with State Street accounting for the next largest slice at 13%. But Invesco is on the cusp of becoming the fourth asset manager to surpass $1 trillion in assets under management in ETFs. The vast majority of its assets come from its Invesco QQQ Trust QQQ, which ended August at $489 billion in total net assets and has continued to produce strong flows and performance year after year.

Just as Invesco is nearing this milestone, iShares and State Street have brought their own Nasdaq 100 ETFs to market. IShares Nasdaq 100 ETF IQQ and State Street SPDR Portfolio Nasdaq 100 ETF QNDX launched in July 2026, and each costs just 0.10%, or 0.08% less than QQQ. For now, Invesco’s ETF remains the dominant Nasdaq 100 ETF. Time will tell if it will be able to protect its flagship, as two of the largest ETF providers now offer a near-identical investment at a lower cost.