Funds continue to pour into U.S. stock ETFs, with technology funds seeing net outflows for the first time

In March, U.S. stocks continued to perform strongly. Exchange-traded funds (ETFs) continued to be favored by investors, with large capital inflows, while technology ETFs experienced net outflows.

Data show that in March, global investors invested US$126.5 billion in ETF products in the US market. This data is second only to the last two months of 2023 and the third highest monthly inflow since 2021.

In this round of buying boom, stock ETFs took over US$96.6 billion, showing that investors still have a relatively positive attitude towards US stocks.

In terms of themes, industrial stock ETFs are the most popular, with net inflows of US$1.4 billion. This is the strongest performance of industrial themed stock ETFs since July 2023; raw materials and energy industry ETFs have a net inflow of US$1.3 billion and US$600 million respectively. Net inflows followed closely, and these are industries that are highly cyclical and highly dependent on economic performance.

The capital movement in March sent an important signal. Technology ETFs experienced a net outflow of US$600 million, which was the first net outflow since June last year. It was also the first time since October last year that the level of capital inflows was lower than the broader market.

What surprised the market was that healthcare ETFs with defensive attributes were not favored by funds, and there was a net outflow of US$700 million.

In this regard, Cooper, BlackRock’s iShares senior macro strategist in Europe, the Middle East and Africa, explained that although U.S. economic growth remains strong, market sentiment has gradually changed in the face of the challenge of rising interest rates. The defensive buying shift gradually increased investment in cyclical industries. Technology ETFs have attracted a large amount of funds in the past year, and their positions have been relatively saturated.

Data from research firm VettaFi underpins the change: The Industrials Select SPDR Fund attracted $829 million in inflows in March, while the Materials Sector Select SPDR Fund and the Energy Sector Select SPDR Fund attracted $574 million and $494 million respectively. Billions of dollars in inflows, both reversing the trend of outflows over the past year.

However, the Healthcare Sector Select SPDR Fund experienced a net outflow of $150 million during the same period.

VettaFi Investment Director Rosenbluth pointed out that from the data, we can see that currently, market interest is beginning to shift from the technology sector to other areas. A considerable number of investors believe that risks in technology stocks are accumulating and have given up chasing the seven major technology stocks that once led the gains.

However, Wall Street analysts emphasized that this market shift related to the economic cycle is logical, especially as the U.S. stock market continues to perform strongly in the first quarter, and a shift to moderate caution is very necessary.

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