ETF Positioning Value and Financials Gain Favour as AI Flows Moderate in July

ETF Positioning Value and Financials Gain Favour as AI Flows Moderate in July

 July ETF flows suggest a rotation within equities rather than a clear shift in overall risk Lalatendu Khandagiri appetite. Against a backdrop of resilient economic data and policy uncertainty, investors sought opportunities beyond the technology and AI-related exposures that Sebastien Lemaire have driven performance for much of the year.  Within monthly allocations, investors showed a clear preference for cyclical and Sunil Vaderahalli Dayananda economically sensitive exposures. The Russell 1000 Value UCITS 30/18 Capped Net Tax 15%, MSCI World Financials, MSCI World Industrials and S&P Global 1200 Jérémy Cadenat Energy were among the strongest recipients of capital. Inflows into the Dow Jones US Select Pharmaceuticals suggest that investors also maintained selective interest in more defensive sectors.

 The strongest redemptions were concentrated in quality, ESG and AI-linked strategies. The S&P 500 Quality FCF Aristocrats experienced by far the largest relative outflows during the month. At the same time, investors reduced exposure to the ETFs tracking Nasdaq US Smart Semiconductor, Solactive Etna Artificial General Intelligence and Solactive Data Center REITs & Digital Infrastructure v2. While these flows may initially appear inconsistent with broader enthusiasm around AI-related investment themes, they are more likely to reflect tactical profit-taking and portfolio rebalancing after a prolonged period of outperformance. Outflows from MSCI All Country World SRI Low Carbon Select and MSCI Global Climate 500 North America Selection suggest that investor appetite for broad ESG-oriented strategies remains relatively subdued.

 Year-to-date flows continue to highlight the dominant themes of 2026. The strongest allocations remain concentrated in the AI ecosystem, including the FTSE Taiwan 30/18 Capped, MSCI Korea 25/50, MSCI ACWI IMI Semiconductors & Semiconductor Equipment ESG Screened Select Capped and Solactive Data Center REITs & Digital Infrastructure. Together, these flows highlight the prominence of AI-related exposures within year-to-date ETF allocations. Inflows into United States SOFR Secured Overnight Financing Rate Compounded also indicate demand for liquidity and carry alongside risk-asset allocations.

 Overall, July flows suggest investors are not reducing risk but redistributing it. Allocations increasingly favoured value, financials, industrials and energy, while quality and broad ESG exposures saw limited demand. The month's flow patterns point to a broader opportunity set across equities rather than a further concentration in the narrow group of growth themes that have dominated investor allocations for much of 2026.

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Insight on ETF Primary Market Flows 2026 ETF Flows vs. Historical Trends Monthly ETF Flows vs Historical Averages ($m)

Source: SG Cross Asset Research/ETF Source: SG Cross Asset Research/ETF

Monthly ETF Primary Market Flows ($m) by asset class Monthly ETF Primary Market Flows ($m) - Active vs Passive

Source: SG Cross Asset Research/ETF Source: SG Cross Asset Research/ETF

 Monthly ETF Flows vs Historical Averages: Equity allocations remained the primary driver of ETF demand in July. While US equities again attracted the largest inflows and exceeded historical averages, developed and emerging market equities also gathered meaningful inflows relative to recent trends. Government bond allocations also strengthened relative to historical averages, suggesting some investors may have sought to lock in prevailing yields amid uncertainty around the interest-rate outlook. By contrast, investment grade bond flows were more subdued, indicating a preference for sovereign duration exposure over credit risk.

 ETF Primary Market Activity: July recorded the strongest monthly ETF flow total of 2026 to date, further extending the year's lead over historical flow trajectories. Both active and passive strategies attracted robust inflows, although passive products continued to account for the majority of allocations. Overall, the flow profile appears consistent with…