Although US stock investors have continued to invest heavily in some cutting-edge technology stocks this year, some old-fashioned bets have unexpectedly become mainstream in the American civil society: betting on industry
As the US government embarks on a long-term plan to enhance self-sufficiency while addressing climate change, and American businesses seek to strengthen their domestic supply chains in the aftermath of the pandemic, coupled with geopolitical pressures and increasing demand for new energy infrastructure, investment in the entire US industrial sector seems to be regaining vitality.
This has prompted many ETF investors to invest more funds in industrial funds, even though a series of challenges in this field still exist, such as a significant slowdown in US manufacturing activity and doubts about US consumer demand for goods.
The most typical example behind this phenomenon is the Global X US Infrastructure Development ETF (PAVE), which has now replaced Wall Street's "female stock god" Cathie Wood's ARK Innovation ETF (ARKK) and become the largest thematic fund in the United States.
According to industry compiled data, after attracting nearly $1.5 billion in capital inflows this year, PAVE's asset size has reached $7.5 billion. However, due to experiencing capital outflows every quarter so far this year, ARKK's asset size has plummeted from nearly $9 billion at the beginning of this year to about $5.2 billion.
Many popular funds recently launched in the US market are also themed around industry. For example, Global X just launched an infrastructure fund with the code IPAV last month, which invests in non US infrastructure companies. In addition, BlackRock launched the iShares US Manufacturing ETF (MADE) in July, while Tema launched the US Corporate Return ETF (RSHO) in May last year.
This trend highlights that investing in the traditional real economy is increasingly being sought after by American investors. However, people's desire to invest in technology companies that claim to be "disruptive but almost universally fail to achieve profitability," such as Sister Mu, has significantly weakened.
The wind direction has changed
Todd Sohn, ETF strategist at Strategas, stated that technology focused thematic funds, including ARKK, have performed poorly, driving investors towards ETFs with an industrial focus.
He pointed out that infrastructure and industrial funds are more resilient in market fluctuations, and this industry includes multiple sub sectors that can adapt to different economic environments.
Among the theme ETFs tracked in the industry, PAVE has the largest inflow of funds this year. The fund's heavy holdings include Parker Hannifin, a manufacturer of fluid transmission products and systems, and United Leasing, the world's largest equipment leasing company.
The second largest inflow of funds is the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID), which holds over half of its shares in the industrial sector. The fund has "raised" $667 million within the year.
Among the top ten funds in terms of capital inflows, RSHO and iShares U.S. Infrastructure ETF (IFRA), two industrial ETFs, are also among the best - the former absorbed $83 million and the latter absorbed $78 million.
On the other hand, according to industry compiled data, ARKK is expected to experience net outflows for the third consecutive quarter this year, marking the worst consecutive outflow record for the fund since its establishment in 2014. With the outflow of funds reaching as high as 2.4 billion US dollars this year, Mu Mu Jie's flagship fund is bound to experience the most severe outflow of funds.
In addition to ARKK, other funds in Sister Wood's Ark Fund have also been generally abandoned by investors: Ark's next-generation Internet ETF (ARKW) and Ark's active biological gene technology innovation ETF (ARKG) have outflows of more than 400 million dollars respectively in the year, while Ark's financial technology innovation ETF (ARKF) and Ark's autonomous technology and robot ETF (ARKQ) have outflows of about 300 million dollars respectively.
This is not to say that investors have completely lost interest in technology stocks - since the beginning of this year, the largest technology giants have still led the US stock market to rise sharply. However, at the same time, technology stocks that have not been profitable for a long time or are highly speculative have performed poorly, disappointing many investors.
Data shows that a basket of technology company indices that have failed to achieve profitability has fallen by over 13% so far this year, while the Nasdaq 100 index has risen by 10% during the same period.
Roxanna Islam, Head of Industry Research at TMX VettaFi, stated:; quot; In the context of increasing market uncertainty and decreasing distributable funds, investors are inclined to layout more practical investment concepts. Compared to disruptive technology funds such as ARKK, industrial themes such as infrastructure and manufacturing return can provide a relatively safer growth narrative, while disruptive technology funds such as ARKK have recently been more associated with risk rather than return.