Investors have reduced their exposure to technology ETFs as threats of a trade war linger and US President Donald Trump engages in personal feuds with tech sector CEOs.
TrackInsight found that cumulative flows into tech ETFs are down $1.5 billion over the past month, and outflows are barely in the green year to date at $273 million.
Returns, on average, are only plus 0.8% year to date and minus 7% in the past month, compared to the S&P 500’s returns of minus 0.1% and minus 4.5% over the same periods respectively.
Tech ETFs could outperform broad market
Technology was the best performing S&P 500 sector in 2017, and some tech ETFs in the US have outperformed the broader market.
Yet QQQ has lost $273 million since 1 January, while XLK is up $416 million. However, over the past month, both funds have seen net outflows.
Markit said in a note that as global equity markets sell off and Trump warns of tariffs, it was not surprising that investors wanted to take money off the table.
“In Q1 2018, we saw the first quarterly outflows from this asset class since 2016, though the net outflow of $151 million is not significant compared with the $88 billion in Q4 inflows,” it read. “So far in Q2, the outflow trend has continued, but with the quarter being one week old that could easily reverse if the market is able to find its footing.”
Technology scandals hurt share prices
The main stock weighing down the ETFs’ fortunes is Facebook, whose CEO Mark Zuckerberg recently testified regarding the company’s entanglement with Cambridge Analytica, a firm that mined users’ information to target them with political advertising.
Netflix and Amazon are classed as consumer discretionary stocks and make up a large portion of QQQ. Trump has recently accused Amazon of not paying tax, putting retailers out of business and misusing the US Post Office, as well as accusing Jeff Bezos’ newspaper, The Washington Post, as a source of fake news. The seemingly personal feud has shaved billions off Amazon’s share price.
Netflix bosses have also recently been accused by a former HR director of routinely “tolerating harassment and discrimination” – Netflix denied the claims but settled the case.