June 16, 2017

Tech Stock Slide Perhaps Not as Dour as Many Think

by Tom Roseen

As might be expected, given the mini meltdown that occurred in technology issues during Thomson Reuters Lipper’s fund-flows week ended June 14, 2017, the Science & Technology Funds classification (-$490 million, including conventional funds and exchange-traded funds [ETFs]) witnessed the largest net outflows in the sector equity group. However, the Global Science & Technology Funds classification was able to attract net new money for the week, taking in a little over $55 million.

So, while investors appeared to sour on a few select U.S. large-cap technology issues during the week, triggering net outflows from the likes of Technology Select Sector SPDR ETF (-$555 million) and iShares North American Tech-Software ETF (-$198 million), they appeared to take the opportunity to shift gears. Investors took some of their hard-won profits off the table and rotated into other issues.

While the headline numbers for the fund-flows week showed investors were net redeemers of fund assets (-$0.9 billion), that didn’t tell the whole story. Investors were net redeemers of money market funds, pulling out $15.7 billion for the week, but they were net purchasers of equity funds (+$10.9 billion), taxable bond funds (+$3.5 billion), and municipal bond funds (+$0.4 billion).

Mutual fund investors continued to be net redeemers of equity funds during the week, redeeming $6.8 billion from conventional funds—$3.2 billion from domestic equity funds and $3.6 billion from nondomestic equity funds—as the rise in geopolitical uncertainty mounted.

However, authorized participants (ETF investors) injected some $17.7 billion net into equity ETFs (their largest weekly net inflows since December 14, 2016), favoring large-cap ETFs (+$9.9 billion), international equity ETFs (+$3.2 billion), and financial services ETFs (+$2.3 billion). SPDR S&P 500 ETF (+$5.4 billion), iShares Core S&P 500 ETF (+$4.5 billion), and iShares Russell 2000 ETF (+$2.2 billion) attracted the largest amounts of net new money of all individual equity ETFs.

So, while many bears were describing the mini meltdown in big-name tech stocks—a catalyst in the market’s recent run—as a house of cards and a start to broader market declines, it appears—at least for now—that lofty prices and record market closes have just led many investors to take some profits and reallocate into other potential opportunities.

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