Strong ETF Inflows and Rising Interest in Defense Sector Funds
The latest report from the Investment Company Institute (ICI), released on July 9, 2025, provides a snapshot of U.S. fund flows for the week ending July 2. The data indicate total estimated inflows of $29.59 billion into long-term mutual funds and ETFs. Within this total, mutual funds experienced outflows of $23.29 billion, while ETFs recorded strong net issuance of $52.89 billion. Equity funds saw a significant rebound with inflows of $13.14 billion, driven largely by domestic equity funds that attracted $10.26 billion. Global equity strategies added another $2.88 billion, signaling renewed investor confidence after previous weeks of volatility and mixed sentiment in international markets.
Bond funds also saw substantial interest, gathering $17.48 billion during the same week. Most of this capital went into taxable bond funds, which drew in $16.56 billion, while municipal bond funds contributed an additional $925 million. This trend suggests continued demand for fixed-income products amid a moderately favorable interest rate environment. In contrast, hybrid funds, which combine equity and fixed-income securities, experienced net redemptions of $1.07 billion. Commodity funds showed minimal activity, adding only $41 million in inflows, a sharp decline from the previous week’s $2.32 billion. These shifts reflect more selective investor positioning across asset classes.
In parallel, interest in sector-specific ETFs remains high, with the iShares U.S. Aerospace & Defense ETF (ITA) standing out. As of July 14, its net asset value reached $193.62, capping the upper end of its 52-week range. The fund has delivered a year-to-date total return of 30.97 percent, supported by strong performance in key defense-related stocks. The ETF tracks the Dow Jones U.S. Select Aerospace & Defense Index and manages over $8.6 billion in net assets. Its largest holdings include GE Aerospace, RTX Corporation, and Boeing, together representing a significant portion of the portfolio. Daily trading volumes and tight bid-ask spreads confirm the fund’s high liquidity and strong investor interest.
ITA’s portfolio is composed of 38 equity holdings and maintains near-total exposure to the aerospace and defense sector. As of July 11, the fund's sector allocation stood at 99.78 percent in aerospace and defense, with negligible positions in other industries. The fund's standard deviation over three years is 19.84 percent, with a beta of 0.92, indicating moderate volatility relative to the broader market. The ETF carries a price-to-earnings ratio of 37.74 and a price-to-book ratio of 5.57, reflecting investors’ expectations for strong earnings growth. The expense ratio remains competitive at 0.40 percent, and Morningstar has assigned it an overall rating of four stars based on risk-adjusted returns.
Taken together, the strong ETF inflows, rising equity allocations, and growing interest in defense-sector exposure illustrate current market sentiment. Investors appear to be balancing optimism about economic resilience with a targeted approach to sector allocation. The divergence between ETFs and mutual funds highlights a continued structural shift toward more flexible, cost-efficient investment vehicles. Meanwhile, the popularity of ITA suggests a strategic focus on national security, aerospace technology, and defense procurement, themes that are increasingly relevant in a changing geopolitical context. As always, past performance is not a guarantee of future results, but the current trends provide insight into how capital is being repositioned across U.S. financial markets.