A total of $49.7 billion flowed into U.S.-listed ETFs last week, bringing the year-to-date total to a record $1.33 trillion, according to data aggregated by ETF.com. At face value, it seemed like a big confidence-building exercise in the equity space once again. But beneath the surface, much of the activity reflected quarter-end mechanics rather than fresh risk-taking—most clearly seen in the tug-of-war between two of the biggest S&P 500 ETFs.
VOO And IVV Illustrate How Net Flows Can Mislead
The Vanguard S&P 500 ETF (NYSE:VOO) saw an incredible $40.5 billion haul for the week ended Dec. 12, increasing its year-to-date inflow to a record $163.7 billion. This inflow was characteristic of a heartbeat trade, which typically occurs due to tax efficiency strategies and often reverses shortly after, as Etf.com noted. Meanwhile, the iShares Core S&P 500 ETF (NYSE:IVV) lost $51.8 billion of its money for the quarter, a familiar quarter-end pattern that tends to mirror VOO's inflows.
Taken together, the VOO-IVV split illustrates a challenge in ETF data analysis that is becoming increasingly common and difficult to interpret. Large numbers, less and less often, indicate large conviction.
Tech And Semiconductor ETFs Lose Momentum
While mechanical inflows buoyed core equity ETFs, investors were actively trimming exposure to some of the market's most crowded trades. The Invesco QQQ Trust (NASDAQ:QQQ) shed $2.2 billion, while the Technology Select Sector SPDR Fund (NYSE:XLK) lost $658 million. The pullback intensified in leveraged products, with the Direxion Daily Semiconductor Bull 3x Shares (NYSE:SOXL) seeing $1 billion of outflows.
The moves followed a choppy week for technology stocks, as the S&P 500 failed to break to new highs and a post-earnings drop in Broadcom Inc (NASDAQ:AVGO) weighed on broader AI sentiment. The outflows suggest investors are becoming more selective on tech exposure rather than doubling down on momentum.
Equal Weight And International ETFs see Real Demand
But beneath all the noise, there also seemed to be a level of positioning. The Invesco S&P 500 Equal Weight ETF (NYSE:RSP) attracted $1.5 billion of what appeared to be intelligent capital, suggesting investors are quietly hedging against narrowing market leadership. For several months, mega-cap has been in charge.
International equities also saw some attention. The Schwab International Equity ETF (NYSE:SCHF) brought in $1.5 billion, which is notable as one of only a handful of substantial inflows unaffected by mechanical flow dynamics. Though not by any means a universal shift out of U.S.-based stocks, even this sign of rising reverence for valuation and policy uncertainty-related consideration may help near-, as well as long-term, markets adjust to U.S. policy-inspired challenges to traditionally valued investors.
What ETF Flows Are Really Saying
The message from last week's flows is nuanced. Investors are not leaving equity markets, but they seem to be rounding off their sharper edges. Core beta remains in favor, while leverage, concentrated tech bets and duration risk are being pared back. Diversification is regaining appeal.
The ETF market continues to grow at a historic pace. It will be wise not to confuse record inflows with unanimous enthusiasm.
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