Flow & Tell with iShares | Jan 2022


January ETF flows saw investors grapple with market volatility by turning to ETF liquidity for their immediate risk transfer needs. Flows into developed markets ex-U.S. continue their momentum as the search for value and diversification moves abroad. Inflation remains top of mind to start the new year, with investors seeking out exposures to commodities and the energy sector amid higher prices in the real economy.


Seeking differentiation in developed markets.

Investors develop a taste for international exposures as they hit the road in search of value and diversification.

Energy and commodity flows heat up.

Higher, stickier inflation is pushing investors to rethink their exposure to real assets.

Record ETF volumes amid January instability.

Heightened market uncertainty saw investors turn to ETFs to navigate January’s market-wide downturn.


January ETF heat map

January ETF flows compared with index performance

Chart showing January ETF flows heat map

Source: BlackRock, Bloomberg, chart by iShares Investment Strategy. As of February 01, 2022. Universe includes only U.S.-domiciled ETFs. Flows normalized by AUM as of December 31, 2021. Index performance is for illustrative purposes only. Index performance does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Index performance is measured by the following indices: Energy: S&P 500 Energy Sector GICS Level 1 Index; Commodities: S&P GSCI Index; Financials: S&P 500 Financials Sector GICS Level 1 Index; Consumer Staples: S&P 500 Consumer Staples Sector GICS Level 1 Index; Gold: ICE LBMA Price Index; TIPS: Bloomberg U.S. Treasury TIPS Index; Value: Russell 3000 Value Index; DM ex-U.S.: MSCI World ex-U.S. Index; U.S. Equity: S&P 500 Index; Growth: Russell 3000 Growth Index; Consumer Discretionary: S&P 500 Consumer Discretionary Sector GICS Level 1 Index. Coloring is based on quadrants: quadrant I: green; quadrant II: yellow; quadrant III: pink; quadrant IV: purple.


Reopened borders have prompted US investors to look abroad for holidays and investment allocations alike. ETF flows show that, after peaking in early 2021, investor interest in international markets waned as subsequent waves of covid-19 infections led to longer lockdowns and delayed restarts. But that tide has turned: developed markets ex-U.S. ETF exposures saw flows outpace domestic ones by 60% in January, with the space gathering $12.3 billion over the course of the month.1 After its largest quarter of inflows in Q4 ‘21 since 2018, the iShares Core MSCI EAFE ETF (IEFA) gathered another $1.8 billion in January.2

In addition to restart dynamics, fundamental factors are also at play. Relative equity valuations between the U.S. and EAFE sit near all-time highs (i.e. U.S. stocks are more ‘expensive’ than developed markets outside of the US), making EAFE exposures look attractive to investors who may be looking to reinvest profits after a banner year for US equities. 

Index composition matters as well. With central banks moving towards tighter monetary policy, the ‘growth’ factor has come under pressure as markets repriced rate expectations. Although we still see opportunity through differentiation amid the drawdown, the S&P 500 Index exhibits a natural bias towards the ‘growth’ factor with the information technology sector comprising approximately 28% of its holdings.3 In contrast, MSCI EAFE Index holds just a 9% weight in the information technology sector.4 Instead, its holdings are concentrated in value and cyclical exposures: the financial, industrial, consumer discretionary, and healthcare sectors make up over half of its holdings.

Investors looking to diversify away from growth and into value may do well to consider diversifying from away the US and into other developed markets.

The highs and lows of DM flows

Chart high and low DM flows

Source: BlackRock, Bloomberg, chart by iShares Investment Strategy. ‘Relative equity valuations’ is defined as the ratio between the 12-month forward price-to-equity (P/E) ratio of the MSCI USA Index (NDDUUS) and the MSCI EAFE Index (NDDUEAFE). U.S. stocks are ‘more expensive’ than their developed markets ex-U.S. counterparts when the P/E ratio is positive (i.e. MSCI USA Index P/E > MSCI EAFE Index P/E). ETF sector groupings determined by BlackRock, Markit. ‘ETF Flows’ are calculated as the 6-month rolling sum. As of February 01, 2022.


Higher, stickier inflation has caused investors to rethink portfolio allocations, including looking to often-overlooked asset classes. Historically, commodities have served as an effective hedge against inflationary pressures by rising in tandem with CPI prints5, helping to explain the $4.3 billion year-to-date inflows to commodity ETFs after years of little interest.

We believe inflation will persist into the medium term – driven both by supply chain resiliency and reshoring, as well as the net zero transition – and advocate for inflation-proofing portfolios for the path ahead. We therefore see scope for adding commodities to many balanced portfolios, both as a buffer against inflation as well as a diversifying element to traditional stock and bond allocations.

Another beneficiary of a hot economy is often the energy sector. Energy ETFs have added $3.0 billion in net assets over the past three months, bringing one-year net inflows to over $13.5 billion6. Robust demand continues to underpin higher energy prices as the global economy reopens for business. Moreover, supply volatility on the back of geopolitical risks has driven prices to multi-year highs. Consequently, the energy sector has performed well, with companies using free cash flow to return capital to shareholders amid the higher prices. Despite strong performance, flows to the energy sector lag those to financials and consumer staples, suggesting it is far from over-owned.

Flows rebound with the reopening

Chart showing flows rebounding with the reopening

Source: BlackRock, Bloomberg, chart by iShares Investment Strategy, February 01, 2022. ETF groupings determined by BlackRock, Markit. European natural gas and Brent crude oil prices rebased to 100 at the start of 2017. We use the European Energy Derivatives Exchange natural gas futures and Brent crude oil futures to represent European Natural Gas and Brent Crude Oil respectively. Index performance is for illustrative purposes only.  Index performance does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.


Steep selloffs and rapid reversals often lead to elevated trading, and January was awash in all three. Investor unease surrounding hawkish central bank rhetoric, continuing inflation concerns, and mounting geopolitical uncertainty culminated in the worst start to the year for the benchmark S&P 500 index since 2009.7

Total ETF volumes averaged over $250 billion trading on exchange during January – well above the 2021 average of $141 billion.8 In all, ETFs accounted for 33% of all equity trading during the month.9 Activity reached a fever pitch on Monday, January 24th when the CBOE Volatility Index (VIX) touched an intraday high of 39 and ETFs posted a new single-day trading record of $473 billion. The jump in ETF volumes was proportionally higher than either single stocks or derivatives, as both retail and institutional investors turned to them in record numbers.10 Despite the turbulence in markets, trading in ETFs remained orderly.

Jittery markets make for jumps in ETF trading

Chart showing jumps in ETF trading

Source: BlackRock, Bloomberg, chart by iShares Investment Strategy. Data as of February 01, 2022. ‘ETF/Equity Volume Ratio’ calculated by dividing ETF notional volume by total equity notional volume.




Gargi Pal Chaudhuri

Gargi Pal Chaudhuri

Head of iShares Investment Strategy Americas at BlackRock

Kristy Akullian

Investment Strategist


Nick Morales

Investment Strategist