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ETF Flows: Why It Pays to Stay Friends with Global Market Trends

PART:
1 2 3 4 5
Part 3
ETF Flows: Why It Pays to Stay Friends with Global Market Trends PART 3 OF 5

GICS Sector ETFs: Is Risk-On at Record Highs?

Risk-on

As we hinted at in Part 2 of this series, market participants seem to become more comfortable as major equity index ETFs rose to highs last Thursday. From a fund flow perspective, investors didn’t use last week’s triple record highs in SPY, QQQ, and DIA as an opportunity to take profits. On the contrary, market participants poured capital into US equities, underlying positive sentiment.

Turning our attention to the GICS sector ETF space, we saw that positive aggregate net inflows reflected similarly optimistic sentiment. Investors allocated ~$1.7 billion to six GICS sector ETFs while only pulling ~$490 million of cash out of the remaining three ETFs.

GICS Sector ETFs: Is Risk-On at Record Highs?

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Investors prefer cyclical and high-beta exposure

Taking a closer look at GICS Sector ETF flows, we note that market participants allocated most of their capital to “high-beta” and “cyclical” ETFs. Notably, ~40% of total inflows were absorbed by two of the most economically sensitive ETFs: the Industrial Select Sector SPDR Fund (XLI) and the Materials Select Sector SPDR Fund (XLB). Both ETFs are trading just below their YTD (year-to-date) highs. Given that investors added exposure at these extreme levels—instead of reducing cyclical exposure—we can see a certain degree of confidence in the future path of the US economy.

Along the same lines, the high-beta Technology Select Sector SPDR Fund (XLK) placed third in terms of inflows while locking in a seventh consecutive weekly gain. In fact, XLK marked a 52-week high on Thursday. Positive earnings momentum created by technology giants—including Apple (AAPL) and Microsoft Corporation (MSFT)—still resonates with investors.

Keeping the above observations in mind, let’s examine fund flows within our entire ETF universe in the next part of this series.

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