Coming off a volatile month after US President Donald Trump’s announcement of widespread tariffs, global markets rallied in May. Investors responded by putting over $56 billion in US open-end funds and exchange-traded funds. Due to the continued uncertainty in global economies, inflows were largely concentrated in fixed income, which brought in over $60 billion across taxable- and municipal-bond category groups, while equity funds saw mixed interest. ETFs and passively managed funds were the vehicles of choice for investors in May.
Bonds Bounce Back
Following last month, which had the largest rate of outflows since 2022, flows into taxable-bond funds bounced back in May with inflows of almost $54 billion. Nineteen of 23 taxable-bond Morningstar Categories enjoyed inflows. Intermediate core bond, long government, corporate bond, and high-yield bond funds each brought in over $5 billion in May. Municipal-bond funds recovered similarly with $7 billion of inflows.
Outflows Hit Nearly All US Categories in May
Even as US equities rallied in May, most Morningstar categories suffered outflows. The only bright spot was the passive large-growth category, which had its first net inflow in five months, driven by more than $12 billion from passive investors. But large blend, which often enjoys inflows regardless of the market, suffered its first outflow in more than a year and its worst since August 2023. Overall, US equity funds shed more than $17 billion in May, despite almost $6 billion of passive inflows.
Investors Pivot From US to International Equities
US equity funds saw significant outflows in May 2025, shedding over $17 billion in assets—their largest monthly withdrawal over the last 12 months. In contrast, international equity funds attracted more than $7 billion, marking their strongest monthly inflow in 2025. This shift may be a response to the uncertainty surrounding Liberation Day and investors’ preference for broader global diversification.
Record Month of Flows for Derivative Income Funds
Derivative income funds had over $6 billion of net inflows in May, the largest in history, as more investors looked for downside protection in their investments. These funds, which generally offer covered-call strategies, were responsible for the vast majority of inflows into the greater nontraditional-equity category group, which experienced around $7 billion of flows. Derivative income funds have consistently been a growing part of the nontraditional-equity category group, significantly outpacing defined outcome and equity-hedged funds.
Alternatives Growing Quickly, Dominated by Crypto
Alternative assets raked in $7.1 billion in May, part of a $46.2-billion haul over the past year. Digital assets, led by the $70-billion iShares Bitcoin Trust ETF IBIT, dominate this space, accounting for 85% of the category’s inflows over the past 12 months. That said, crypto’s dizzying one-year organic growth rate of over 50% has been slightly bettered by that of the equity market-neutral category, although that category is growing on a much smaller base, with about one-tenth of digital assets’ $95 billion.
This article is adapted from the Morningstar Direct US Asset Flows Commentary for May 2025. Download the full report here.