Rosenbluth noted that tech ETFs have been relatively strong in 2022 in terms of inflows. He said, “we’ve seen over 6 billion dollars of money go into technology ETFs.” He noted that defensive sectors are also seeing strength, with consumer staples, utilities, and healthcare also seeing flows.
Consumer discretionary and communication-related funds, however, have seen net outflows. Rosenbluth pointed out that this means it is critical to understand what holdings are within a technology ETF. “As we tie into the big tech earnings, it really matters what ETF we’re talking about and how it’s classified.”
Social media companies, like Meta (META), are classified as communication services ETFs. They are expected to have rough earnings, which could impact ETFs that hold them such as the Communication Services Select Sector SPDR Fund (XLC). Meanwhile, the Technology Select Sector SPDR Fund (XLK) and the Vanguard Information Technology ETF (VGT) do not have Meta or Alphabet (GOOG) among their holdings. Rosenbluth said, “the devil is in the details in terms of what’s inside these portfolios.”
Currency headwinds are going to be a focus for many companies, according to Rosenbluth, given that companies like Microsoft, Apple, Alphabet, and Meta are multi-national. The strong U.S. dollar is likely to weigh down on profitability abroad. “I think investors are looking to get exposure to these companies through the diversification benefits of an ETF and they need to know what’s inside those ETFs.”
Rosenbluth said that despite the doom and gloom, some earnings reports have been solid, particularly financials, which investors can get exposure to through ETFs such as the SPDR S&P Bank ETF (KBE).
“The bar tends to be set relatively low with earnings season and companies have been exceeding that relatively low bar, but we’ll see what happens,” said Rosenbluth, noting that ETF investors benefit from getting exposure across a sector instead of having to pick out an individual winner.
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