ETF & ETP Market Trends: Q1 2026 Flow and Tell

Key takeaways:

• Equity ETF flows started Q1 strong, but slowed sharply in March amid rising risk from the conflict in the Middle East.
• Supported by rising oil prices, Energy became the top equity sector in terms of flows, marking a rare departure from Tech.
• International equities regained momentum, with January flows outpacing U.S. equities for the first time since early 2023, with a notable tilt toward emerging markets. But momentum softened and turned to outflows later in the quarter.
• Fixed income flows dominated toward the end of the quarter as heightened volatility triggered a flight to safety.

Markets began this year with a potent mix of solid fundamentals and investor optimism. But despite solid macro data (upside surprises in payrolls, cooling inflation, and still-healthy consumer spending), markets contended with shifting rate expectations and renewed geopolitical tensions in the Middle East, a combination that pushed oil prices to highs not seen since 2022 (~$100 a barrel) and added volatility across assets.¹

Against this backdrop, equity performance broadened meaningfully, and leadership within the AI trade has shifted from end-user software toward infrastructure beneficiaries. Taken together, Q1 reflected a market transitioning from narrow, tech-led gains to a more diffuse and macro-sensitive regime - where higher dispersion, rising commodity influence, and geopolitical risk increasingly shaped returns.

Here’s what that backdrop spelled for ETF flows over the first quarter:

From surge to stall: Q1 began with exceptional strength, with equity ETFs taking in over $100 billion in both January and February. But momentum faded quickly into March, as conflict in the Middle East deepened.

• Equity ETFs added just $64 billion in the month, after three straight months of over $100 billion in inflows. That sharp deceleration coincided with rising volatility and a more uncertain macro backdrop.
• The ways investors have been engaging with equity ETFs are changing. Active ETFs accounted for nearly 90% of March’s total, putting them on track to outpace index products, a rare feat. Value funds also netted more inflows than growth, reversing a five-year trend in which growth consistently led.
• Within sector flows, Energy has moved to the top of the leaderboard for the first time in years, a notable shift in leadership. Since 2020, Tech has been the dominant expression, ranking first in roughly 40% of months. Over the last 6 years, energy has taken the top spot only twice. This latest move has coincided with a firming in oil prices, driven by renewed geopolitical tensions in the Middle East and supply dynamics as critical shipping lanes go offline.

What it means: With oil prices rising due to the conflict in the Middle East, oil surged to above $100/bbl

One of the most pronounced equity trends this quarter was the resurgence in international demand, with a clear preference for emerging markets.

• January marked a turning point, with international equities outpacing U.S. flows for the first time since early 2023, and that momentum carried into February - international exposures accounted for roughly half of all equity inflows vs. 20% last year.
• Emerging markets were at the center, with EM ETFs gathering more than $35 billion so far this year - already surpassing full-year totals from several recent years. As Middle East tensions intensified, EM flows held up initially (~$8 billion in early March) but quickly faded, turning from modest inflows to consecutive outflows — signaling a lagged deterioration in risk appetite rather than an immediate reversal.
• Flows have also extended into more granular exposures, with single-country ETFs seeing strong demand, including South Korea and Brazil. The drivers appear both cyclical and structural: a still-weak U.S. dollar, improving earnings momentum abroad, and a renewed investor appetite for diversification beyond the U.S. market.²

Flows skewed defensive toward the end of Q1 as volatility increased. In the first two weeks of March, fixed income funds represented over 75% of total ETF flows, reflecting a clear flight to safety amid heightened uncertainty.

• Positioning shifted toward shorter duration: more than 50% of March’s fixed income flows went into ultra-short and short-term exposures, with iShares 0-3 Month Treasury Bond ETF (SGOV) leading inflows in both March, and year-to-date. Long-duration funds saw outflows in Q1.
• Similarly, government bonds accounted for almost 60% of March’s fixed income flows, while corporate credit reversed from nearly $12 billion in February to -$2 billion in outflows.
• Active demand also normalized within fixed income funds into quarter-end, accounting for only 26% of March’s flows (down from over 40% in January and February), suggesting that as volatility rose, investors flocked back to benchmarks.

What it means: Investors have flocked to shorter dated Treasuries amid heightened volatility.

Commodity flows were choppy in Q1 as rising volatility drove a rapid unwind in positioning. The cohort had a relatively subdued start to the year, adding over $11 billion in January and February, in line with monthly averages. However, March recorded the largest monthly outflow from commodity funds in over two years, driven primarily by significant outflows from metals, as markets sharply repriced Fed rate cuts, pushing real yields higher.³

• Demand for gold moderated after a record 2025: the category saw over $6 billion in net outflows over the quarter, vs. $12 billion in inflows in the year-ago period. But iShares Gold Trust (IAU) bucked the trend, adding over $1 billion, suggesting that investors largely rotated within gold exposures rather than exiting the asset class entirely.
• Bitcoin ETPs similarly experienced net outflows in Q1, a notable slowdown from last year’s breakneck pace. Since Bitcoin’s October 10th crash, U.S. spot funds have shed nearly $6.4 billion amid a broader crypto downturn.

All ETF/ETP data sourced from Bloomberg, with ETF/ETP bucketing as determined by Bloomberg. As of 3/19/2025.