The Gold Trade Collapsed in March, and ETF Investors Flowed Into Bonds at a Record Pace

Investors pulled back from riskier ETFs in March, although part of the market bet on the oil trade.

March ETF Flows Highlights

• As the demand for gold reversed, investors pulled a record $12.8 billion from ETFs in the commodities-focused category.
• Ultrashort bond ETFs set a monthly record, with $25.5 billion in inflows as investors sought out safe havens.
• Equity energy ETFs had their best month on record, collecting $4.9 billion as oil surged past $110 a barrel.
• International equity ETFs extended their inflows streak but showed signs of cooling.

Investors poured $108 billion into US exchange-traded funds in March, down from February’s $183 billion. Gold demand collapsed, oil prices soared, and investors rushed toward the safest corners of the bond market.

Active ETFs continued their charge, pulling in $51.5 billion—48% of all March flows—despite accounting for only 15% of total ETF assets. Active ETFs have captured 40% of flows for the year to date.

The table below shows March returns for a sample of Morningstar analyst-rated ETFs that represent major sections of the stock and bond markets.

Gold Demand Reversed Alongside Its Plummeting Price

Gold lost roughly 12% of its value in March, and investors soured on the yellow metal. They pulled a record $12.8 billion from ETFs in the commodities-focused category—mainly gold ETFs—sending that category to its worst month for flows on record. SPDR Gold Shares GLD and iShares Gold Trust IAU shed $7.9 billion and $3.8 billion, respectively. Both set records for monthly outflows.

Gold is typically seen as a safe haven in tumultuous markets, but two forces worked against it in March. The US dollar strengthened materially, and rate-cut expectations collapsed after energy prices spiked and reignited inflation fears. Both headwinds hit gold from different angles. Gold is priced in US dollars globally, so a stronger dollar makes it more expensive for foreign buyers and damps demand. Gold pays no interest, so it loses its appeal relative to dollar-denominated assets like Treasuries when rates stay elevated.

Ultrashort Bonds Shatter Records as Investors Seek Shelter

The Fed held rates at 3.50%–3.75% at its March 18 meeting—its second straight pause—and the oil-driven inflation spike made further cuts look increasingly unlikely. With rates above the Fed’s own estimate of the long-run neutral rate of around 3.0%, yields continue to be attractive.

Investors rushed into ultrashort bond ETFs, which pulled in a record $25.5 billion—nearly tripling February’s $9.8 billion. IShares 0-3 Month Treasury Bond ETF SGOV led the way with $8.5 billion, its best month ever, while the intermediate government-bond category added another $7.1 billion, also a record.

The appeal is straightforward. With yields holding above 3.5% and markets in turmoil, short-duration Treasuries offered something stocks and gold couldn’t: attractive income with very little risk.

The other end of the bond market told a different story. High-yield bond ETFs shed $5.6 billion and corporate bond ETFs lost $2.4 billion as investors flew to safety, despite pulling in $7.8 billion the month prior.

Energy Stocks Find Their Moment

Equity energy ETFs had their best month on record, collecting $4.9 billion. Energy was one of the few equity categories that made money in March, with oil surging past $110 a barrel after the Strait of Hormuz closed. State Street Energy Select Sector SPDR ETF XLE, which holds stocks in the energy sector, gained 10.3% and pulled in $1.8 billion.

Speculators bet on both sides of the oil trade. They stashed nearly $1 billion in ProShares UltraShort Bloomberg Crude Oil SCO in March—about 8 times the ETF’s net assets at the end of February. That ETF bets the price of oil will fall. It did the opposite. Oil prices surged roughly 55% in March, and ProShares UltraShort Bloomberg Crude Oil returned negative 40%.

Its losses were cushioned somewhat by how the ETF is structured. It seeks daily investment results of twice the inverse (negative 2 times) of its benchmark, meaning it resets its exposure each day rather than compounding the full 55% move against investors. That daily reset mechanism is what kept losses at negative 40%, though that’s cold comfort for anyone who held the ETF for the full month.

On the other side of the trade, the two best-performing unleveraged oil ETFs in March were both from United States Commodity Funds—the firm that launched the first crude oil ETF in the US back in 2006. United States Brent Oil BNO, which tracks Brent crude futures, surged 49.6%, closely mirroring the actual move in oil prices. United States Oil USO, which tracks WTI crude futures, wasn’t far behind. Unlike equity-based energy ETFs such as State Street Energy Select Sector SPDR ETF, which hold energy stocks and are influenced by earnings and management decisions, both USCF ETFs hold crude oil futures directly. They got the full benefit of oil’s price movement.

International Equity: The Streak Continues, but the Wind Is Dying

International stock ETFs collected $19.2 billion in March, less than half of February’s $52.4 billion. IShares Core MSCI EAFE ETF IEFA, which tracks developed markets outside the US and Canada, fell 8.3% on the month but still attracted $2.2 billion in fresh capital. IShares Core MSCI Emerging Markets ETF IEMG dropped 9.8% and saw flows slow to a trickle at $60 million, down from $2.2 billion in February. Foreign large growth was a bright spot, pulling in a record $5.1 billion. IShares MSCI EAFE Growth ETF EFG accounted for $4.8 billion of that.

Value Beats Growth for the Second Month Running

Large-value ETFs outpaced large-growth in flows for the second consecutive month. They pulled in $26.2 billion of flows over February and March combined. Exceptional performance from a few growth-oriented stocks has caused growth ETFs to become heavily concentrated compared with their value-leaning counterparts. A handful of mega-cap technology names tend to dominate those funds. That leaves them vulnerable to market shocks affecting the largest stocks. Value ETFs aren’t invulnerable to shocks, but they should hold up better if the largest tech stocks fall.