As The Market Scrambles Over Tech And Trade Fears, ETF Fund Flow Signals Interesting Rotation

Fear continues to grip traders and investors in a wrestling match between a market filled with fundamental promise and a global and domestic economic picture that is just this side of bedlam. Major U.S. indexes continue to rise and fall by full percentage points daily, moving in tune with downward pressure from Nasdaq-listed tech stocks like Facebook, Inc. FB 1.05% and Apple, Inc. AAPL 2.83%. At the same time, fears persist of the costs of a perceived potential trade war with China and how that might impact industries from agriculture to aerospace.

All of this is making traders antsy. So, we took a look at the fund flow of a selection of Direxion leveraged specialty and sector ETFs. Because of their use as a hedging and short-term trading vehicle, these ETFs can paint an interesting picture of where traders are turning in the midst of a market seemingly at war with itself.

The following data is taken from ETF.com and represents net purchases and redemptions over the month of March.

Followers Take the Lead

While Nasdaq-listed, mega-cap tech stocks have been the engine driving much of the market’s upward momentum over the past eight years, the headline risk facing the tech sector as a whole has shifted the balance of power to lower profile, but comparably strong sectors.

Topping the list for highest investor in-flow throughout March are the Direxion Daily S&P Biotech Bull 3X Shares LABU 5.32% with $180.46 million followed by the Direxion Daily Financial Bull 3X Shares FAS 2.02% at $131.53 million and Direxion Daily Semiconductor Bull 3X Shares SOXL 12.91% with $105.73 million.

While these funds have received considerable attention from traders over an extremely volatile March, trade worries over current and future tariffs pose headline risks. Nascent fears of potential retaliation from China with respect to their U.S. debt buying program might rattle bond markets. But big banks could definitely feel pressure if tariffs drive down borrowing for expensive equipment among farmers or small industrial manufacturers in the face of rising interest rates.

By that measure, pharma names have also already felt a reaction to news from China about the country’s own biotech ambitions, which might include infringing on the patents of American-made drugs. Last, semiconductor manufacturers, while maintaining fundamental strength, face issues of fading demand in the cryptocurrency-mining market and ever-changing security, safety and production measures by the technology firms using the hardware.

Flying Under the Radar

With the potential of abrupt changes affecting some of the high-flying industries, we also took a look at fund flow for several other sector ETFs that have had less of a leading role in the currently waning bull market.

Sitting in the middle of the leveraged ETF pack are the Direxion Daily Gold Miners Index Bull 3X Shares NUGT 0.94% at $88.70 million in investor inflows and the Direxion Daily Small Cap Bull 3X Shares TNA 1.99% with $13.97 million in purchases throughout March. Both are up from the start of that March into the first few days of April, marking 3.66 percent and 3.43 percent growth in share price, respectively, over that span. Gold, for its part, has seen recent support from a falling dollar, boosting miners; while the small caps have benefited from a diverse and dense selection of less market-reliant stocks.

The short-term pictures on miners and small caps have revealed that broad-sector resilience does exist, even in this market. Other ETFs with positive inflow, like the Direxion Daily Natural Gas Related Bull 3X Shares GASL 1.77% ($5.30 million) and the Direxion Daily Energy Bull 3X Shares ERX 0.37% ($44.76 million) could serve as future opportunities for investors weary of this multiple-personality market.