October 12, 2018

The Science & Technology Funds Group Experiences Its Third Worst Weekly Net Outflows Ever

by Patrick Keon.

For Lipper’s fund-flows week ended Wednesday, October 10, its Science & Technology Funds peer group (including both mutual funds and ETFs) suffered net outflows of more than $1.3 billion. That was the group’s third worst outflows in its history (Lipper began tracking the data in 1992) and its worst since the fund-flows week ended February 4, 2015, when it had net-negative flows of $2.2 billion. Prior to this past week the peer group was on pace to outdistance its largest annual net inflows ever. The tech funds peer group took in $12.9 billion of net new money in 2000 and followed that with eight consecutive annual net outflows after the tech bubble burst. The group has had net inflows of $9.7 billion for 2018 year to date, following $10.3 billion of net-positive flows for 2017 (its second highest annual result ever).

Investors recently turned away from tech sector funds in part because of the continued surge in Treasury yields. The yield on the ten-year Treasury note peaked at 3.23% on October 5 before closing Thursday, October 11 at 3.15%. The last time the yield on the ten-year note closed higher than 3.23% was on May 4, 2011, when it finished at 3.25%. To provide some perspective on the recent spike the ten-year yield has gone through, as recently as September 17 (2.99%) it had closed below the psychologically important 3.00% barrier. As evidenced by this week’s fund-flows results the rise in yields has initiated a rotation out of riskier investments (growth stocks and high-yield debt) and into safer investments (short-term investment-grade debt). In addition to the net outflows from the Science & Technology Funds peer group the High Yield Debt Funds group (-$4.9 billion) experienced the fourth highest net-negative flows in its history. Conversely, the Ultra-Short Obligation Funds (USO) category had the best net-inflows week in its history with $1.6 billion of net new money. (USO funds invest primarily in investment-grade debt and have effective average maturities less than one year.) USO funds have taken in net new money for 31 straight weeks for total net-positive flows of $24.3 billion.

The overwhelming majority of the net-negative flows for the Science & Technology Funds group this past week came from ETFs (-$1.2 billion), while the mutual fund side saw $87 million leave. The net outflows for ETFs were fairly heavily concentrated, with three products accounting for over 87% of the total net outflows: Technology Select Sector SPDR Fund (XLK, -$685 million), VanEck Vectors Semiconductor ETF (SMH, -$231 million), and First Trust Dow Jones Internet Index Fund (FDN, -$188 million).


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