While many on Wall Street have chased the monster rally in mega-cap tech stocks this year, exchange-traded fund (ETF) investors seem to be bucking the "all-in on tech stocks" trend and opting for a more diversified strategy.
The Nasdaq Composite index has climbed about 31% for the year, powered by a handful of tech stocks that have soared on hype surrounding artificial intelligence.
But the Technology Select Sector SPDR Fund, a tech-focused exchange-traded fund, saw $2.4 billion of net outflows in the first half of this year compared to $20 million net inflows during the same period in 2022, according to VettaFi, a financial data and analytics firm. The Vanguard Information Technology Index Fund saw $955 million of net outflows in the first half of 2023 compared to $291 million net inflows in the first half of last year.
Investors had piled into tech-focused ETFs last year when the sector had fallen out of favor, betting that tech stocks would recover, buoyed by an economy that remains resilient despite the Federal Reserve's punishing pace of interest rate hikes.
Now, investors are exiting these ETFs and reallocating their cash to quality stocks with strong balance sheets that can withstand a potential economic downturn, says Todd Rosenbluth, head of research at VettaFi.
"Investors are more likely to be defensive minded, given the expectations that the Fed is going to be raising interest rates again in the second half of the year," said Rosenbluth.
The iShares MSCI USA Quality Factor ETF has been popular with investors this year, and saw $8 billion in net inflows during the first half of this year, according to Rosenbluth. While roughly 28% of the fund has exposure to tech names, it also contains stocks in industries like healthcare that will likely be able to withstand weaker economic growth or even a recession.
Moreover, investors who were burned by the seesawing market last year due to the Fed's rate hikes, persistent inflation and geopolitical tensions are likely looking for higher quality sources for returns rather than risky ones, says Shelby McFaddin, investment analyst at Motley Fool Wealth Management.
"After you chase returns you get a little out of breath, and it becomes time to reach out for that quality diversification," said McFaddin.
Comments
Post a Comment