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Despite a strong first half performance for the broad equity markets, ETF equity flows have been subpar this year. The big money has gone into Treasury ETFs and money market funds. Even technology ETFs have seen outflows. What’s the second half going to look like for ETF investors? First half inflows were subpar The first half ended with a modest acceleration of inflows into equity ETFs. Going into the final week of the half, about $98 billion in equity inflows had been recorded, but the final week saw notable inflows, ending with $125 billion in equity inflows, according to Todd Sohn, ETF and technical strategist at Strategas. Sohn told me he was unsure if this sudden inflow was FOMO [fear of missing out] coming alive, or just window dressing. Regardless, first half equity inflows were still well short of the prior years’ first half activity. YTD flows: It’s all about Treasurys Treasurys: $60 billion inflows Cash-like bonds: $13 billion inflows Tech sector: $1 billion outflows Energy: $12 billion outflows Value: $14 billion outflows Source: Strategas There’s a surprising lack of enthusiasm towards cyclicals like industrials despite great leadershp, while investors continue to take money out of energy. And outflows from technology? With the S & P Tech sector up 39% year to date? That is a bit odd. Clearly, the bull market has been in money market and short-term Treasury flows. But can that last? Sohn said there has been a small chunk of money coming out of money market funds in the last two weeks of the quarter, but that most investors were still sticking with the nearly 5% yields they were getting from money market and short-term Treasurys. In sum, there is “a ton of equity market apathy, despite being nearly 9-months off the October low,” Sohn said. But with money market funds returning at best 5% yield, how many are going to keep holding on to that when they get their quarterly statements and see outperformance like this? Year to date Nasdaq 100: up 39% S & P 500: up 16% What could work in the second half There’s going to be plenty of investors who are going to look to put money to work in the second half. I asked Sohn for alternatives to short-term Treasurys and money market funds. If you believe the market will broaden out to include sectors other than technology: Invesco S & P 500 Equal Weight ETF (RSP) : This is the equal-weight S & P 500. Vanguard Extended Market ETF (VXF) : These are small- and mid-cap stocks. If you think inflation is going to still be an issue, but you want to stay in stocks: Fidelity Stocks for Inflation ETF (FCPI) : Tracks an index of large- and mid-cap stocks with a tilt toward inflation-sensitive sectors. If you think the broad market will continue to rally: Renaissance Capital IPO ETF (IPO) : A basket of 50 to 60 recent IPOs that acts as a gauge of risk and liquidity. The IPO ETF is up 34% this year, twice the performance of the S & P 500. If you think the AI-rally has got even more legs in the second half: Roundhill Generative AI & Technology ETF (CHAT) : This ETF holds stocks like Nvidia , Microsoft , Alphabet and others that would benefit from continuing investment in artificial intelligence. If you think the selloff in commercial real estate has been overdone: DoubleLine Commercial Real Estate ETF (DCMB) : This ETF holds investment grade commercial mortgage-backed securities. Want more? Join us Wednesday at 1:10 p.m. on ETF Edge for our second half ETF playbook. Todd Sohn, ETF and technical strategist at Strategas, and Dave Nadig, VettaFi Financial futurist, will be our guests.
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