We are all familiar with the so-called October Effect.
Investopedia describes it this way: “The October effect refers to the belief that stocks tend to decline during the month of October. It is considered to be more of a psychological expectation than an actual phenomenon, as most statistics contradict the theory.”
It’s an interesting phenomenon, to use their word. We come into the month looking for an increased potential for market crashes, and an increase in volatility vs. previous months. We expect a deterioration of investor sentiment as the market swings. And, yet, we know we may also see the stock market display surprising resilience — historically speaking — with gains above average.
October brings a sort of good-meets-bad-meets-ugly that is likely to turn out great in the end.
So far this quarter, October 2025 has seemingly delivered on all those fronts. With an ongoing government shutdown, and concerns about its economic impact, October has already welcomed a pick up in volatility that saw the Cboe VIX Index hit, at one point, its highest level since those early-April tariff-related highs. Uncertainty — partly fueled by a lack of fresh economic data — looms large, and investors are nervous. And, yet, the market keeps on flirting with and/or forging new historic highs.
Equity ETF asset flows, perhaps surprisingly or perhaps not at all, tell us that investors are aware of the market noise, but they continue to bet heavily on stock market resilience with a side of caution.
Let’s look at some numbers.
More Large-Caps Please
Coming into Q4, equity ETFs had been taking in about 58% of all net asset creations this year across all asset classes. So far in October, equities ETFs have taken in 50% of all ETF asset flows, a haul that’s strong but lagging year-to-date levels in relative terms.
Within that asset gathering pace, however, we see an appetite for traditional large-cap exposure — as in S&P 500 exposure — that goes on undeterred. The top-three most popular ETFs this month are all tied to the broad benchmark.
Together, these three ETFs have snagged roughly 37% of all equity ETF flows so far this month. And it’s the Invesco QQQ Trust Series (QQQ ) — you guessed it — that rings in at number four, with net asset creations of $2.6 billion in October, followed by the Vanguard Total Stock Market ETF (VTI ), with $2 billion.
In other words, the top-five list of investor favorites this month looks like a who’s who among traditional passive equity ETF stalwarts.
The flip side is equally interesting. For all of our increasing fears and concerns about the path of economic growth, diversification within equities hasn’t been a big theme this month.
The iShares Russell 2000 ETF (IWM ) is the month’s biggest asset loser so far in October, bleeding over $3 billion in assets. The Invesco S&P 500 Equal Weight ETF (RSP ) comes second, with net asset redemptions of about $1.4 billion. Small-caps, equal-weighted portfolios — both well-liked diversifiers to large-cap concentration — are both leading outflows this quarter.
Can’t Get Enough Gold
It could be that diversification remains focused on one of the year’s biggest bullish stories, which continues to be reflected by insatiable investor appetite. That is gold.
In many ways, gold has emerged this year as the goldilocks asset, delivering that much-needed diversification from equities while offering capital appreciation as prices hit repeated new records, and acting as a safe-haven play to concerns about rising inflation.
We’ve all marveled at gold’s performance this year, and we continue to gasp at some of the price projections for the yellow metal going forward. Investors are buying a lot of physical gold ETFs this quarter.
So far in October, the commodities asset class of ETFs has snagged over 8.8% of all ETF asset flows. The top-three asset gatherers are all gold funds:
October Effect Isn’t Real. Long Live October Effect
To go back to Investopedia, “statistical evidence” isn’t very strong that October brings weaker stock market performance, but “the psychological expectations” of a challenging October persist.
So far this month, The S&P 500 is up about 0.8%. The Nasdaq 100 is up nearly 2%. And gold has already tacked on 7% in gains this month.
“From a historical perspective, October has marked the end of more bear markets than the beginning,” according to Investopedia. “This makes October an interesting prospect for contrarian buying.”
So far, so good.
For more information, please visit VettaFi.com | ETF Trends.
