As the equities market experienced its worst start to a new year, exchange traded fund investors fled growth sectors and jumped into defensive stocks, along with betting on a valuation play.
Investors’ eyes are on the tech space this week amid a spate of fourth quarter earnings results, but the technology sector was among the most unloved area of the market so far this year. Year-to-date, the Technology Select Sector SPDR (NYSEArca: XLK) experienced almost $1.2 billion in net outflows, according to ETF.com. [A Big Earnings Week for Technology Sector ETFs]
Concerns over Apple (NasdaqGS: AAPL), the largest component in tech-sector ETFs, may have dragged on broad sector play.
“The whole technology sector has fallen out of favor, and Apple is certainly a big part of that,” Bill Schultz, chief investment officer at McQueen, Ball & Associates Inc., told Bloomberg “There’s some concern that the Apple growth rate is slowing going forward. At this point, people are looking elsewhere for more reliable earnings.”
Additionally, the Financial Select Sector SPDR (NYSEArca: XLF) also saw $843.7 million in outflows so far this year. Investors may have grown increasingly wary of bank ledgers after oil prices plunged to 12-year lows and the outlook for highly leveraged energy producers grows more uncertain.
On the other hand, the plummeting oil prices have also attracted traders trying to catch a falling knife. For instance, investors funneled $463.5 million into the Energy Select Sector SPDR (NYSEArca: XLE) year-to-date. XLE has declined 28.6% over the past year and dipped 11.9% so far this year as crude oil futures slipped to their lowest since 2003, which may have enticed some bargain hunters to begin easing back into an oversold market.
ETF investors also sought other traditional defensive picks during the recent market distress. The Consumer Staples Select SPDR (NYSEArca: XLP) saw $579.6 million in inflows, Utilities Select Sector SPDR (NYSEArca: XLU) added $647.6 million and Health Care Select Sector SPDR (NYSEArca: XLV) brought in $168.6 million year-to-date. [Defensive Consumer Sector ETFs for a Volatile Year]
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.