Year-to-date ETF flows in the U.S. crossed $500 billion in June 2025, underscoring the resilience of ETF investors this year despite the volatile policy environment. U.S. ETF flows are currently on pace to exceed the calendar year record of $1.12 trillion in 2024, since flows typically tend to be strong in the fourth quarter. At this time last year, year-to-date flows into U.S. ETFs were $380 billion. The data for 2025 indicates that retail investors have steadily bought ETFs despite trade and geopolitical uncertainty.
Vanguard ETFs, which are typically used by retail investors, account for 37% of net flows so far this year, compared to 27% in the last two calendar years. Vanguard ETFs account for four of the top 10 ETFs by year-to-date flows (see Table 1), with the Vanguard S&P 500 ETF (VOO) alone accounting for 16% of the total.
Retail ETF Investors “Bought the Dip” in H1 2025
The hypothesis that retail investors have been patient and bought the dip this year is borne out by flows into S&P 500-linked ETFs. As a simple proxy, we split the four S&P 500 tracking ETFs into two categories—“institutional oriented” and “retail oriented.” The SPDR S&P 500 ETF Trust (SPY) and iShares Core S&P 500 ETF (IVV) are classified in the former bucket, since 13-F filings indicate that they have higher institutional ownership. VOO and the SPDR Portfolio S&P 500 ETF (SPLG) are classified as “retail oriented.” (Note: this distinction is not “absolute” since all four ETFs have both retail and institutional ownership, but it is directionally useful).
Aggregate flows into the two “retail-oriented” S&P ETFs have been positive in every month this year (see Figure 1), despite the 26% price decline in the S&P 500 between February 19, 2025, and April 8, 2025. Retail-oriented S&P ETFs took in $11.1 billion in March 2025 and over $22 billion in April, when reciprocal tariffs were announced and then paused. In contrast, the two institutional-oriented ETFs had negligible aggregate net inflows in March and over $19 billion outflows in May.
Geopolitical and Trade Tension Risks Persist
Retail investors who stayed in equity ETFs benefited from the market bounce back after the April 9 pause on reciprocal tariffs, but still face a range of risks. The most immediate conflict is between Iran and Israel, which has the potential to impact oil prices if the war is extended further. As of Monday, June 23, 2025, there were signs of de-escalation, as President Donald Trump announced a possible cease-fire between Israel and Iran. Additionally, Iran’s response to the American bombing of its nuclear sites was performative and telegraphed in advance. While these signs of de-escalation are positive, the possibility of the conflict extending still exists. Washington Analysis, CFRA’s Policy Research division, is of the view that while the current pause in hostilities is tenuous, the ceasefire will likely hold at a probability of 55%.
Another key unknown is what happens next on reciprocal tariffs. The July 9 deadline for the end of the pause on reciprocal tariffs is approaching fast. Trump left the G-7 summit early without any new bilateral trade deals after the already-reported U.K. and China negotiations. Currently, the market seems to have priced in the assumption that reciprocal tariff rates will be closer to a baseline 10% than the original rates proposed on Liberation Day.
Finally, ETF investors will be watching rate announcements from the U.S. Federal Reserve. At its June 18 meeting, it left policy unchanged. Although inflation has surprised to the downside, Fed Chairman Jerome Powell seems inclined to wait and see if tariffs or the Middle East conflict result in higher prices. However, the political pressure to cut rates is likely to keep increasing, especially if inflation prints continue to be positive.
Looking Ahead: Could Investors Turn Defensive?
While retail ETF investors have largely bought the dip in U.S. equities despite these macroeconomic risks, some defensive ETFs have also been receiving investor interest in the past month. For example, the SPDR Gold Shares (GLD), a popular safe haven from volatility, had positive inflows in each of the last five calendar weeks (i.e., the weeks between May 19, 2025, and June 20, 2025). This is a turnaround from the outflows in the ETF in each of the five calendar weeks prior to May 19. Also, in the trailing one month through June 20, 2025, ultra-short bond ETFs accounted for 80% of the flows into treasury bond ETFs, indicating that investors do not want to take on duration risk.
Investors will likely monitor negotiations on the Middle East conflict and tariffs to see if these issues pose any larger risks to their portfolios. In our view, this will determine whether market participants continue to invest in equity ETFs like they have in the first half of the year or become more defensive in the second half.
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