Tech: Big inflows with one exception

Despite persistent worries about higher for longer inflation and the negative implications for technology stocks, the big money continues to pour into technology stocks. All of the biggest tech funds have seen significant inflows this year, with one exception from a former tech darling. Why are investors continuing to put their faith into tech? Let’s talk with nature AC head of the ETF store Also an independent investment advisor. Nate. What’s the reasoning of investors here? Every broad tech fund from Spider Technology, QQQ, Vanguard Tech has seen big inflows this year, even though higher rates usually are technology stocks, not this year. Yeah, I think very simply, when interest rates are high and when the prevailing assumption is that they could remain higher for longer, that causes investors to take a much harder look at what they’re paying for and what they’re getting when buying stocks. And the bottom line is, if you look at many of the mega cap tech companies, which are very prominent in these tech ETFs, while their valuations are elevated overall, they’re producing tangible earnings and they have a treasure trove of cash sitting on their balance sheets. And I just think investors feel much more comfortable with those types of companies right now. And that’s what we’re seeing reflected in ETF flows. It’s almost as if big tech ETFs have become a place to hide out because investors know what they’re going to get. They’re basically viewed as quality plays. It’s usually it’s a contrarian play. That’s what I’m intrigued by. There’s one exception here, Kathy Woods ARC Fund is continuing to see outflows like it did in 2023. And even our other funds, space exploration, Internet, all of them robotics, fintech, they’re all seeing outflows. So what’s the difference? Why are investors pouring money into big broad tech funds but not into Kathy Wood? Well you’re right, the ARC Innovation ETF has 1 1/2 billion dollars in outflows this year. And Simply put, I think this goes back to investors preferring to own the types of companies that are producing earnings and cash flow. Now these lottery ticket type growth companies that ARC owns simply aren’t resonating in this environment because just at a basic level investors can scoop up 5% plus yields with no risk in short term treasuries. And so why place bets on companies where the future is much murkier and instead you can sit back on mega cap tech companies that are producing in the hair and now and I think that’s exactly what investors are doing. So you’re you’re making a very specific point here. It sounds like the emphasis you’re saying is not just by technology but on quality technology, I mean quality being high return on equity, stable earnings growth, low debt to equity, you get that in those companies not necessarily in some of the ones that that Cathy owns. Is it, is it really a quality play essentially? I do think it is. I think when the rate environment is uncertain and perhaps the future economic outlook is a bit cloudy because we don’t know if the Fed will be able to land this softly enough. I think investors look to quality and again, it’s proven earnings, it’s cash on the balance sheet. That’s what’s resonating in this environment. Yeah alright, going to have a lot more on tech and the move to quality plus an update on attempts to capitalize on inflation plays a number of ETFs around that still out there. Nate is going to be joined by John Davi at Astoria who runs a quality ETF and Jim Davalos who runs the Inflation Beneficiaries ETF. All that coming up 1:10 PM Eastern Time ETF edge.cnbc.com.