Getting Defensive, Investors Shift Sector Focus in April | ETF Trends

Stock market volatility remained high in April, leading advisors to look more into defensive sector ETFs.

In April, six U.S. sector focused ETFs were among the 20 most viewed tickers on the ETF Database platform. Engagement improved month over month for three ETFs aligned with less volatile, defensive sectors, while it slowed for the three ETFs tracking more cyclically focused sector benchmarks.   

The Vanguard Real Estate ETF (VNQ) was the most sought after of the sector ETF tickers in April, with a 9.2% increase in traffic from a month prior. The $48 billion ETF, which gathered $255 million of net inflows in April, owns real estate investment trusts (REITs), such as American Tower (AMT), Crown Castle (CCI), and Prologis (PLD).

Meanwhile, the Consumer Staples Select Sector SPDR (XLP), saw a 32% spike in traffic on ETF Database in April. The ETF is relatively concentrated with 10%+ stakes in Coca-Cola (KO), Costco Wholesale (COST), Pepsi (PEP) and Procter & Gamble (PG). The $17 billion fund also had $1.2 billion of net inflows during April.

The third most popular defensive sector ETF was the Health Care Select Sector SPDR (XLV), which also saw a 32% increase in pageviews in April, although off a lower base. Larger than XLP, the $38 billion health care fund pulled in $1.7 billion in new assets last month. UnitedHealth Group (UNH) and Johnson & Johnson (JNJ) are the ETF’s top-two positions, recently just under 10% of assets, but Abbvie (ABV), Eli Lilly (LLY), Merck (MRK), and Pfizer (PFE) provide some diversification.

Advisors Turn From Cyclical Sector ETFs

In contrast, the Energy Select Sector SPDR ETF (XLE) fell out of favor with ETF Database users, with a 37% drop-off in traffic last month. This is somewhat surprising, as energy stocks have been a bright spot in 2022, significantly outperforming the broader S&P 500 Index. The $38 billion XLE, which has nearly half of its assets in Exxon Mobil (XOM) and Chevron (CVX), had $640 million of new money in April, driven by a more than $900 million inflow on the last trading day.

Technology stocks have lagged behind throughout 2022, and engagement around the two largest of these pure sector ETFs diminished notably in April. The Technology Select Sector SPDR (XLK) and the Vanguard Information Technology ETF (VGT) page views declined 19% and 15%, respectively. Both ETFs have hefty stakes in Apple (AAPL) and Microsoft (MSFT), but VGT provides more small-cap exposure. Despite diminished traffic on our site, the pair of sector ETFs had a combined $700 million of net inflows in April.

Research from Sam Stovall, chief investment strategist at CFRA, has shown that defensive sectors like consumer staples and health care have performed better than the broader S&P 500 Index between May and October, while cyclical sectors like consumer discretionary, industrials, materials and information technology tend to be stronger performers between November and April. Sector rotation strategies can thread the needle on this shift: For example, the Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF (SZNE) rotates semi-annually between the stocks in the aforementioned defensive and cyclical sectors.

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