ETFs & Markets with Todd Sohn: Analyzing the Surge in ETF Flows and Key Differences from 2021 Trends

▶️ Watch the video here, or read the transcript below.

So, for the overall ETF industry, 2024 is pushing $1 trillion in inflows. Equity is clearly the big contributor to that. But then on this chart, the most notable item is that equity flows are holding steady at about 60% of overall flows for the last three years.

So this is just that flows are broadening out, into other areas such as fixed income, which has had a record breaking year, derivative type strategies that are going to be covered calls or single stock leveraged funds as well as crypto also contributing. So the overall industry still very much, booming here. But as for equity ETFs, we have seen a major spike in equity ETF flows, pushing $240 billion over the trailing 65 days.

It's roughly three months. This is a major surge, and it is reflective of some aggressive behavior developing from investors. Now, flows are not a definitive signal, right? They're more of a lens into the psychology of the market. But the very least we would be on guard along with if we start to see more complacent data from the options market survey data, perhaps that can manifest itself into some sort of a speed bump for stocks.

But trend is still up. And again, just be mindful that, there are some animal spirits brewing here from equity ETFs.

At the sector level, we're more worried about all in tech flows, than other corners. Right now, 2024 has been all about piling money into technology. That's been the record for the most part. But I am worried, as I'll show you in just a second here about technology performance.

Meanwhile, every other corner from the sector and thematic areas really been left behind. You barely had positive inflows combined from all sectors. Thematic funds of Ark outflows. And so the main difference between today and the prior record for ETFs back in 2021 is that it was much more broad based at the sector and thematic area. Thematic funds took in billions of dollars, roughly 100 billion.

That was to non-profitable tech strategies, YOLO type strategies for what it's worth. And then you also had a big surge into cyclical sectors, particularly following the 2020 election, to say financials, industrials, materials, and not a lot to tech.

Now speaking of tech, the all in flows and aggressive positioning there has seemingly manifested itself into weaker relative performance.

And that's whether you look at tech cap weight or whether you look at, tech on an equally weighted basis. The aggressive positioning, the behavior from investors. You're starting to see tech deteriorate in terms of leadership. I think if there's one main takeaway here, it's that tech is not the same as it was earlier in this cycle.

That doesn't mean a major top is forming, but just be mindful that the leadership baton, the profile of technology is changing and that there's other areas that are picking up the slack, such as, financials.

And lastly, away from aggressive quarters is health care. Health care has been home to the largest amount of outflows of sector ETFs over the last year.

And I would also point out that on a relative basis, you are in the bottom decile compared to the S&P, using about 35 years of data here or so. Healthcare performance so bad it might be good. We have been waiting for this sector to turn, but the I think the recent appointments by the administration seemingly spooked the market on the sector.

And that has left the health care sectors wait in the S&P 500, now at about 10%, that's a 25 year low. Pharma and biotech specifically are down to about 6%. That is a 35 year low for the S&P 500. So not great backdrop for healthcare, but interesting in that performance. Again, so bad it might be good in that there's a little ton of outflows from these sectors that, suggest that investors have really abandoned the space.

So that's what we have today. I hope this was helpful and let us know if you have any questions.

This communication was prepared by Strategas (“we,” “us,” or “our”), a brand that offers investment advisory services through Strategas Asset Management, LLC, an SEC Registered Investment Adviser, and provides research to institutional investors through Strategas Securities, LLC, a broker-dealer and FINRA member firm and an SEC Registered Investment Adviser.  This communication represents our views as of 10/08/2024, which are subject to change, and presented for illustrative purposes only. The information contained herein has been obtained from sources we believe to be reliable, but no guarantee of accuracy can be made. This communication is provided for informational purposes only and should not be construed as an offer, recommendation, nor solicitation to buy or sell any specific security, strategy, or investment product.  This communication does not constitute, nor should it be regarded as, investment research or a research report or securities recommendation and it does not provide information reasonably sufficient upon which to base an investment decision. This is not a complete analysis of every material fact regarding any company, industry, or security. Additional analysis would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any particular client and is not presented as suitable to any other particular client. Past performance does not guarantee future results. All investments carry some level of risk, including loss of principal.

Strategas Asset Management, LLC and Strategas Securities, LLC are affiliated with Robert W. Baird & Co. Incorporated ("Baird"), a broker-dealer and FINRA member firm, and an SEC Registered Investment Adviser, although the firms conduct separate and distinct businesses.

The ETFs described herein are referenced solely for illustrative purposes and should not be construed as an investment recommendation. An investment in exchange traded funds involves risk, including the possible loss of principal. For important disclosures and risks relating to each ETF referenced herein, see each respective funds’ prospectus or contact your financial professional