MW Tech-related ETFs post huge 2023 gains with boost from AI hype, but some big ones still are left with outflows
By Christine Idzelis
'FOMO is not a great investment strategy,' says Matthew Tuttle, CEO and CIO at Tuttle Capital Management
Hello! This week's ETF Wrap takes a look at tech-fund demand and performance while highlighting several AI-themed ETFs that have attracted inflows this year.
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Technology stocks are booming this year after 2022's steep selloff, but investors in exchange-traded funds aren't racing across the board for exposure to the sector despite massive returns propelled in part from recent excitement around artificial intelligence.
The S&P 500's information-technology sector gained 9.3% in May, bringing its year-to-date rise to 33.3%, according to FactSet data.
Meanwhile, this year's flow of capital throughout the tech sector has "puzzled" Todd Sohn, an ETF strategist at Strategas who in a note this week highlighted outflows from two large ETFs: the Technology Select Sector SPDR Fund $(XLK)$, which tracks an index of tech stocks in the S&P 500, and the Invesco QQQ Trust $(QQQ)$, which gives investors exposure to the tech-heavy Nasdaq-100 index.
"It's strange," Sohn said by phone. "There's a lack of embrace towards the tech move."
Shares of both ETFs have skyrocketed more than 30% this year, after tanking in 2022. Sohn finds year-to-date outflows from the Invesco QQQ Trust "odd" as its big gains have come "without a true scent of herding behavior" even if investors are flocking to the smaller, cheaper version of the fund -- the Invesco Nasdaq 100 ETF-- for tech exposure, according to his note.
Also, the Technology Select Sector SPDR Fund (XLK) is a "main way to play" tech stocks, but ETF investors seem to still have "some skepticism" about the U.S. equities market's recovery from last year's brutal selloff, Sohn said by phone.
So far in 2023, the ETF, which has $48 billion of assets under management, has seen about $2.5 billion of outflows despite soaring 32% this year through May, FactSet data show. And investors have pulled about $1.8 billion from the Invesco QQQ Trust in 2023, even as the ETF has surged 30.7% in the first five months of the year.
Meanwhile, the ProShares UltraPro Short QQQ $(SQQQ.UK)$, which traders may use to make single-day bets against the Nasdaq-100, saw $329 million of inflows over the past month to bring this year's total to $4.4 billion, FactSet data show.
Read:'Won't get fooled again'? Nasdaq jumped more than 10% in January. Here's what history shows happens next to the tech-heavy index
Still, investors this year have poured $3.1 billion into the Invesco Nasdaq 100 ETF $(QQQM)$, a fund that launched in October 2020 and has around $11 billion of assets under management, according to FactSet data. The fund remains dwarfed by the giant Invesco QQQ Trust, which launched in 1999 and now has around $188 billion of assets under management.
While the Invesco Nasdaq 100 ETF was designed for long-term investors seeking exposure to large-cap growth stocks, flows in and out of the bigger Invesco QQQ Trust can be "very noisy" as the fund tends to be actively traded by investors who may, for example, be using it as a hedging tool, said Ryan McCormack, senior factor and core equity ETF strategist at Invesco, in a phone interview.
The smaller Invesco Nasdaq 100 ETF has posted returns similar to those of the Invesco QQQ Trust, but its expense ratio of 0.15% is five basis points cheaper, according to FactSet data.
Tech-related stocks have jumped this year after a bruising 2022 provided investors an entry point at lower valuations, with AI-related enthusiasm over the past couple weeks sending shares of companies such as chip maker Nvidia Corp. $(NVDA)$ and Marvell Technology Inc. $(MRVL)$ even higher, said McCormack. Both companies are in the Nasdaq 100.
See:Marvell stock soars after upbeat earnings outlook, projection that AI revenue will double this year
Investors concerned about excessive exposure to megacap companies, like Nvidia or Microsoft Corp. $(MSFT)$, because of their heavy weightings in popular benchmarks such as the S&P 500 and Nasdaq 100 , may turn to an equal-weighted index to help diversify their tech exposure, according to Sohn.
For example, investors have added $545 million so far this year to the Invesco S&P 500 Equal Weight Technology ETF $(RYT)$, whose shares have risen 15.1% over the first five months of 2023, FactSet data show.
AI-themed ETFs
Meanwhile, some investors have been putting money to work in ETFs targeting artificial intelligence as an investment theme, including the recently launched and actively managed Roundhill Generative AI and Technology ETF $(CHAT)$.
In other examples, the Global X Robotics & Artificial Intelligence ETF $(BOTZ.UK)$, iShares Robotics and Artificial Intelligence Multisector ETF $(IRBO)$, First Trust Nasdaq Artificial intelligence & Robotics ETF $(ROBT)$, WisdomTree Artificial Intelligence and Innovation Fund $(WTAI.UK)$ and ROBO Global Artificial Intelligence ETF (THNQ) are funds tracking indexes that provide AI exposure. They all have attracted inflows so far this year, including over the past month, FactSet data show.
"FAANG and friends" are benefiting from the AI hype, said Matthew Tuttle, chief executive officer and chief investment officer at Tuttle Capital Management, in a phone interview, referring to the acronym commonly used for a group of stocks including Facebook parent Meta Platforms Inc. $(META)$, Apple Inc. $(AAPL)$, Amazon.com Inc. $(AMZN)$, Netflix Inc. $(NFLX)$ and Google parent Alphabet Inc. $(GOOGL)$
Tuttle said he's not chasing AI exposure at "extended" stock prices, but that Advanced Micro Devices Inc. $(AMD)$ was among the companies he was watching for buying opportunities should valuations come back down to levels where shares may find support for a potential bounce.
"FOMO is not a great investment strategy," he said.
As usual, here's your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.
The good...
Top Performers %Performance VanEck Semiconductor ETF SMH 11.6 iShares Semiconductor ETF SOXX 10.6 iShares Expanded Tech-Software Sector ETF IGV 6.4 iShares U.S. Technology ETF IYW 6.2 Fidelity MSCI Information Technology Index ETF FTEC 6.0 Source: FactSet data through Wednesday, May 31. Start date May 24. Excludes ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater.
...and the bad
Bottom Performers %Performance United States Natural Gas Fund LP UNG -12.2 VanEck Oil Services ETF OIH -7.9 United States Oil Fund LP USO -7.7 iShares U.S. Oil & Gas Exploration & Production ETF IEO -5.6 Alerian MLP ETF AMLP -5.0 Source: FactSet data
New ETFs
Allianz Investment Management announced on Thursday the launch of the AllianzIM U.S. Large Cap Buffer10 Jun ETF (JUNT) and AllianzIM U.S. Large Cap Buffer20 Jun ETF (JUNW), funds that provide "a downside buffer" of 10% or 20% against market drops while offering "upside potential of the SPDR S&P 500 ETF Trust $(SPY)$ up to a stated cap."
-Christine Idzelis
Weekly ETF reads
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June 01, 2023 15:32 ET (19:32 GMT)
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