Semiconductor and Memory Stocks Weigh on ETF Returns Globally in October

Morning Star11-04 00:00

October ETF Flows HighlightsUS exchange-traded fund inflows surpassed $187.9 billion in October.Large-cap US stocks ended October in the red, but smaller stocks held their own and limited the market’s...

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class=\"title\">\nSemiconductor and Memory Stocks Weigh on ETF Returns Globally in October\n</h2>\n\n<h4 class=\"meta\">\n\n\n2026-11-04 00:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.morningstar.com/funds/semiconductor-memory-stocks-weigh-etf-returns-globally-october><strong>Morning Star</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>October ETF Flows HighlightsUS exchange-traded fund inflows surpassed $187.9 billion in October.Large-cap US stocks ended October in the red, but smaller stocks held their own and limited the market’s...</p>\n\n<a href=\"https://www.morningstar.com/funds/semiconductor-memory-stocks-weigh-etf-returns-globally-october\">Source 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ETF Flows HighlightsUS exchange-traded fund inflows surpassed $187.9 billion in October.Large-cap US stocks ended October in the red, but smaller stocks held their own and limited the market’s drawdown.Emerging markets had their second worst month of performance this year, with iShares Core MSCI Emerging Markets ETF IEMG dropping 8.5% in October.Large semiconductor stocks dragged on ETF returns across global Morningstar Categories.Roundhill Memory ETF DRAM had its third consecutive month of outflows, losing $2.1 billion.Low-risk bond ETFs continue to attract billions of dollars of inflows across municipal, short-duration, and investment-grade ETFs.Global bonds had a strong October after lackluster performance in September and softened the blow of poor-performing global stocks. The table below shows returns for a sample of ETFs that serve as proxies for major asset classes. A blended 60/40 global portfolio lost 0.21% last month.\n\t\t\tOctober Market Performance Through the Lens of Analyst-Rated ETFs\n\t\t       Source: Morningstar Direct. Data as of Oct. 31, 2026. *Blended Global Portfolio represents a 60% allocation to VT, 20% allocation to BND, and 20% allocation to BNDX. Download CSV.Stock Market SummaryUS large-cap stocks lagged their small- and mid-cap peers in October. IShares Core S&P Small-Cap ETF IJR and iShares Core S&P Mid-Cap ETF IJH ended the month up 3.1% and 1.9%, respectively, while iShares Core S&P 500 ETF IVV lost 0.87%.The stocks that had led the market’s artificial intelligence boom were the same stocks that detracted from large-cap stocks’ performance. Specifically, Nvidia NVDA, Alphabet GOOGL, Meta Platforms META, Micron MU, and Advanced Micro Devices AMD were each down between 10% and 20% in October. Intel INTC was iShares Core S&P 500 ETF’s single worst-performing stock in October, which ended the month down 45.3%. It was a poor month for technology on the surface, but the majority of the decline occurred at the very end of the month. Nearly every stock related to the AI trade sold off on Oct. 30 following disappointing earnings and broader AI growth concerns.The AI selloff hit international markets earlier in the month. Emerging markets in particular struggled as iShares Core MSCI Emerging Markets ETF IEMG ended the month down 8.5%. South Korean stocks Samsung Electronics 005930 and SK Hynix 000660 were each down 21.8% and 28.9%, respectively, just two weeks into October. The drop came from increasing competition in memory technology and concerns surrounding foreign investment. Factor ETFs tell a similar story, with iShares MSCI USA Momentum Factor ETF MTUM dropping 10.4% in October. The ETF is filled with the same semiconductor stocks that hurt iShares Core S&P 500 ETF but is substantially more concentrated. Momentum ETFs invest heavily in stocks that have performed well in the recent past, hoping that they will continue to perform well in the near future. This works well for the ETF when stocks rise, as it generally captures more upside than non-factor-focused peers. However, the ETF feels much more of the downside when volatility spikes and popular stocks fall out of favor.Bond Market SummaryFederal Reserve Chair Kevin Warsh held interest rates steady in October despite inflation still running above the Fed’s target rate of 2%. Warsh has one more opportunity to hike interest rates in December as he continues to stand firm on the 2% inflation target. Energy costs have been the greatest contributor to high inflation.IShares 0-3 Month Treasury ETF SGOV continues to collect billions in assets month after month, attracting more than $4.5 billion in October. The only bond ETF to record a higher inflow in October was iShares National Muni Bond ETF MUB, which had $6.1 billion in inflows, its highest ever in its history. Municipal bonds have shot up in popularity as investors seek their historically attractive yields and favorable tax treatment. The muni national intermediate Morningstar Category  had the fourth-highest inflow in October across all Morningstar categories. IShares National Muni Bond ETF accounted for nearly half the category’s inflow alone.Bond ETF flows have favored shorter duration and higher credit quality in the second half of 2026. The trend continued through October as investors wait to see what is to come for interest rates and inflation.\n\t\t\tETFs With the Largest October In- and Outflows\n\t\t       Source: Morningstar Direct. Data as of Oct. 31, 2026. Download CSV.Selective With Tech ExposureETFs targeting semiconductors, memory, and stocks surrounding AI all broadly moved in the same direction over the first half of 2026. They collected large inflows as the stocks they held shot up in value. Today, we see a different story.For the third consecutive month, Roundhill Memory ETF DRAM saw outflows. The ETF launched earlier this year in April and set records as the fastest-growing ETF. It quickly climbed past $10 billion in assets. Unfortunately for many investors, the historic growth was largely over after just two to three months. The ETF peaked on June 22 and hasn’t been able to recover as two of its largest holdings, Samsung and SK Hynix, have floundered.\n\t\t\tGrowth of 10K in Roundhill Memory ETF\n\t\t       Source: Morningstar Direct. Data as of Oct. 31, 2026. Download CSV.Despite the volatility surrounding concentrated technology strategies, the large-growth category attracted the second-highest level of inflows in October. Large growth ETFs attracted $16 billion. Invesco Nasdaq 100 ETF QQQM leads the category in flows, accounting for roughly one-fourth of the entire category’s inflow.\n\t\t\tMorningstar Categories With the Largest October In- and Outflows\n\t\t       Source: Morningstar Direct. Data as of Oct. 31, 2026. Download CSV.Growth Across Active and Passive ETF ManagersETF asset managers continue to grow, despite managing very different types of ETFs. The largest of the bunch—Vanguard, iShares, State Street, Invesco, and Charles Schwab—all target roughly the same types of ETFs. They compete in low-cost, index-tracking, broad-market ETFs. Some of these providers have single ETFs larger than other active managers’ entire ETF lineup. Namely, Vanguard S&P 500 ETF VOO has over $1 trillion in assets under management and Invesco QQQ Trust QQQ holds $410.7 billion. When you look beyond the five largest ETF providers, the narrative shifts. J.P. Morgan, Dimensional, First Trust, Fidelity, and Capital Group devote a significantly larger share of their assets to active strategies aimed at outperforming passive peers. Within the active ETF landscape, however, these firms differentiate themselves through the type of active approaches they take.Capital Group leans on a fundamental approach to active management where portfolio managers use discretion to buy or sell holdings to outperform. In contrast, Dimensional’s ETFs are built around systematic rules and research. They don’t track an index, and portfolio managers are constrained by the rules of a given strategy. They seek to capture a desired market with active tilts that they believe will lead to outperformance.Despite the different approaches, all of these ETF providers have found success with positive year-to-date and monthly flows. \n\t\t\tOctober Flows for the Largest ETF Providers\n\t\t       Source: Morningstar Direct. Data as of Oct. 31, 2026. 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