Where Fund Investors Are Turning for Inflation Protection

Long-term US funds amassed $100 billion in inflows in August, extending their historic streak of reaching that threshold to a fifth month. Yet again, taxable-bond flows drove most of this figure (nearly 70% for the month). Commodities funds also had a strong showing, as sticky price pressures and inflation remain top of mind for investors.

Bond-Fund Inflows Continue Without a Hitch

Taxable-bond funds gathered $69 billion of new assets in August, their fourth straight monthly inflow of more than $60 billion, the second time that’s ever occurred (May-August 2020 being the first). Investors favored short-duration investments, with ultrashort bonds leading all Morningstar Categories in back-to-back months with a $15 billion inflow, though the intermediate core bond category was only $135 million behind.

Short Government Funds Have Their Best Month Since March 2020

Short government funds had a spectacular August, bringing in more than $9 billion, the second-largest inflow into the category on record, trailing just March 2020. The category’s 8.5% organic growth rate for the month is also the largest figure since then, with those two months standing well above the rest, though March 2020’s 17.3% growth rate was in a league of its own. Investors piled into short-term Treasuries as inflation fears picked up, and the Treasury’s increased issuance on the short end contributed to steepening on that part of the curve.

Gold, TIPS Funds Also Benefit From Inflation Fears

Several signs pointed to investors positioning portfolios for heightened inflation in August amid rising oil prices. Fueled largely by funds that invest in gold, commodities funds took in $11 billion, their second-largest monthly inflow on record, trailing just April 2020. Inflation-protected bond and short-term inflation-protected bond categories also had a strong month, combining for nearly $6 billion.

US Equity Funds Eke Out Another Inflow

US equity funds saw a minor net inflow of $2 billion in August. While small, it marked the group’s third straight inflow and fifth out of the past six months. It benefited from an unusual $9 billion inflow champion, as large-growth funds’ August inflow was just their third in 15 months. Five of the remaining eight US equity categories suffered outflows in August. Large growth’s net inflow came predominantly from one exchange-traded fund: Invesco QQQ Trust’s QQQ $18 billion catch—its largest in at least 15 years—curiously came amid an outflow from tech sector funds.

Explaining S&P 500 Tracker ETF Rotation Flows

Massive flows into large-blend US equity funds are driven by a long-term trend toward cheaper, passive vehicles. But intramonth swings among the largest of these ETFs are driven by investors outside the US dodging a 30% tax on dividend income, Bloomberg reported, citing market participants. Once a quarter—the last being in June 2026—investors pull assets from an ETF ahead of its ex-dividend date, before flipping to inflows after (below, the iShares Core S&P 500 ETF’s IVV ex-dividend date is June 15, marked by the black vertical line). The practice was estimated to save foreign investors around $150 million in US taxes last year.

Technology Investors Ctrl-Alt-Defect From Sector-Equity Funds

After four $18-billion-plus monthly inflows through July, investors erased $3 billion in August. Investors switched out of semiconductor funds, including the hot-dot Roundhill Memory ETF DRAM. Meanwhile, sector-equity funds overall lost more than $7 billion, with financials funds $5 billion in the red. That came largely from a $4 billion outflow from a State Street sector ETF. On the plus side, healthcare funds, after years of mostly outflows, admitted $2 billion of new money in August, concentrated in ETFs holding biotechnology and genomics stocks.

This article is adapted from the Morningstar Direct US Asset Flows Commentary for August 2026. Download the full report here.