Industry Updates

Investors yank $1bn from US tech ETF

Growth has significantly underperformed value since the coronavirus vaccine news

Tom Eckett

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Investors pulled over $1bn from a US tech ETF last week following the sector’s recent underperformance since companies successfully tested for a coronavirus vaccine.

According to data from Ultumus, the $743m Xtrackers MSCI USA Information Technology UCITS ETF saw a huge $1bn outflows in the week to 4 December, the second-highest across all ETFs listed in Europe.

The tech sector has significantly underperformed since Pfizer successfully tested for a vaccine causing a rally in pro-cyclical stocks.

Highlighting this, the Russell 1000 Value index outperformed the Russell 1000 Growth index by 6% on 10 November, the highest daily excess return over the past decade.

XUTC has returned 3.8% over the past month versus 37.2% for the iShares S&P 500 Energy Sector UCITS ETF (IUES), as at 7 December.

However, with 22.2% exposure to Apple and 16.4% to Microsoft, XUTC has delivered returns of 41.8% so far this year despite the recent underperformance.

The recent outflows could represent investors cashing in on these stellar returns this year with US tech driving the outperformance of the S&P 500.

Despite the cyclical rally, Paul Craig, portfolio manager at Quilter Cheviot, said tech companies could be set to be the long-term winners of the coronavirus volatility.

“On the winning side are tech-based companies that have benefited from the changes in living and working patterns brought about by lockdown,” Craig continued. “These changes have provided a once in a generation boost for platforms, the cloud, automation, online facilitation, digital payments and robotics.

“While these sectors have suffered a little from the ‘value’ renaissance of late, they are still most likely to benefit over the long-term.”

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Elsewhere, the Xtrackers MSCI USA Health Care UCITS ETF suffered $647m outflows, the third-most across European ETFs.

Heading into 2021, the BlackRock Investment Institute said it prefers a barbell approach of combining tech and healthcare as a result of the structural shift from the coronavirus pandemic along with certain cyclical exposures.

“The US and Europe face challenges in the very near term: A resurgence of virus cases may result in outright economic contraction.

“Yet positive vaccine news is a game changer in that we now know we are building a bridge to somewhere, providing clarity for policymakers, companies and markets about getting to a post-COVID-19 stage.

“We like tech and healthcare due to the pandemic’s transformative shifts.”

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