Investors Dump Equity ETFs—But Can't Quit Their Tech Habit

Investors might be withdrawing billions from the stock market, but apparently not technology. At least that’s what happened last week. Between Sept. 4 and Sept. 10, U.S. equity funds shed a significant $10.44 billion, the largest in more than a month, based on data from LSEG Lipper, cited by Reuters. But tech-themed ETFs ignored the rout, taking in $3.42 billion of net inflows, the sector’s third consecutive week of gains.

At the center of this trend is the Technology Select Sector SPDR Fund XLK, perhaps the most mass-market means of investing in the tech titans. With its leading holdings of Microsoft Corp MSFT, Apple Inc AAPL, and Nvidia Corp NVDA, XLK has become a gauge of megacap momentum. The fund is up around 18% this year, and its liquidity makes it an institutional and retail investor favorite for broad exposure to tech.

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Another direct beneficiary is the Invesco QQQ Trust QQQ, the Nasdaq-100 tracker that is synonymous with growth investing. QQQ heavily leans toward large-cap names in AI, semiconductors, and cloud, and it’s the ETF of choice for those who are convinced of the long-term durability of the artificial intelligence mania.

Its equal-weighted counterpart, Direxion Nasdaq 100 Equal Weighted ETF QQQE, has also found favor with investors who do not wish to over-concentrate in the Magnificent Seven. The fund has gained more than 10% this year so far.

For investors focusing on semiconductors, the backbone of AI, funds such as the iShares Semiconductor ETF SOXX and VanEck Semiconductor ETF SMH have also drawn consistent interest, as understood from its 25% price gains this year. Both track exposure to chipmakers like Nvidia, Taiwan Semiconductor Manufacturing Company Limited TSM, and Broadcom Inc AVGO, providing investors with focused exposure to one of the hottest trends in tech.

Riding A Risky Wave

The paradox is obvious: sector-specific funds, especially in technology, are soaking up flows while broad-market ETFs such as the SPDR S&P 500 ETF SPY are bleeding assets (SPY saw outflows of around $1.9 billion in the past week ended Sept. 12, according to FactSet data).

With the S&P 500’s forward P/E at 24.33, well above its 10-year average, investors seem to be ignoring worry about over-valuation fears, to double down on the sector most associated with future growth.

For shareholders, the message in the flows is simple: if you think the AI and digital infrastructure tale still has legs, technology ETFs such as XLK, QQQ, and SMH are the most straightforward means to catch the wave. But with valuations reaching new heights, catching that wave might also mean preparing for sharper turns.

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