Traders Ditch Tech For Calmer Waters

The Technology Select Sector SPDR XLK, the largest technology exchange-traded fund by assets, recently touched an all-time high, but market participants have recently been selling technology stocks, sending XLK lower in the process.

Looking At Tech's Record

XLK is off more than 2 percent in recent sessions and now resides about 3.5 percent below its record high. With investors yanking money from the bellwether technology ETF, where some of that money is flowing to indicates risk-on-to-conservative trade could be at play.

“We mentioned some 'value' buying last week as well in specifically seeing the Consumer Staples Select Sector SPDR XLP inflows, with over $1.2 billion in via creation flows,” said Street One Financial Vice President Paul Weisbruch in a note out Monday. “In contrast, we have seen some trimming in XLK with about $300 million leaving the fund.”

Tech Vs. Consumer Staples

XLP, the largest consumer staples ETF, is lower by 1 percent over the past week. Some investors' renewed affinity for XLP could be attributed to the consumer staples sector often being a solid bet at a time of year when the broader market is known to languish.

The recent spate of inflows to XLP account for all of the inflows to the ETFs this year. To be precise, XLP has added over $1.1 billion in new assets year-to-date. With the the recent departures from XLK, the big tech has attracted barely more than half the new assets this year as its staples counterpart.

“Sexy” stocks, such as Apple Inc. AAPL, Facebook Inc. FB and Alphabet Inc. GOOG GOOGL dominate in XLK and rival, cap-weighted tech ETFs. Those stocks combine for nearly a third of XLK's roster. Conversely, Procter & Gamble Co PG, Philip Morris International Inc. PM and The Coca-Cola Co KO, a trio of stocks rarely deemed “sexy,” combine for over 30 percent of XLP's weight.

One interesting point about the technology-to-staples trade, assuming it adds momentum, is that XLP's price-to-earnings ratio of just over 21 is above the 18.9 multiple found on XLK. Add to that, XLP could come under pressure later this week if the Federal Reserve decides to raise interest rates because consumer staples is one of the most rate-sensitive sectors.