Some investors are shunning Wall Street's tech frenzy

2023-07-07 19:59

While many on Wall Street have chased the monster rally in mega-cap tech stocks this year, exchange-traded fund (ETF) investors seem to be bucking the "all-in on tech stocks" trend and opting for a more diversified strategy.

The Nasdaq Composite index has climbed about 31% for the year, powered by a handful of tech stocks that have soared on hype surrounding artificial intelligence.

But the Technology Select Sector SPDR Fund, a tech-focused exchange-traded fund, saw $2.4 billion of net outflows in the first half of this year compared to $20 million net inflows during the same period in 2022, according to VettaFi, a financial data and analytics firm. The Vanguard Information Technology Index Fund saw $955 million of net outflows in the first half of 2023 compared to $291 million net inflows in the first half of last year.

Investors had piled into tech-focused ETFs last year when the sector had fallen out of favor, betting that tech stocks would recover, buoyed by an economy that remains resilient despite the Federal Reserve's punishing pace of interest rate hikes.

Now, investors are exiting these ETFs and reallocating their cash to quality stocks with strong balance sheets that can withstand a potential economic downturn, says Todd Rosenbluth, head of research at VettaFi.

"Investors are more likely to be defensive minded, given the expectations that the Fed is going to be raising interest rates again in the second half of the year," said Rosenbluth.

The iShares MSCI USA Quality Factor ETF has been popular with investors this year, and saw $8 billion in net inflows during the first half of this year, according to Rosenbluth. While roughly 28% of the fund has exposure to tech names, it also contains stocks in industries like healthcare that will likely be able to withstand weaker economic growth or even a recession.

Moreover, investors who were burned by the seesawing market last year due to the Fed's rate hikes, persistent inflation and geopolitical tensions are likely looking for higher quality sources for returns rather than risky ones, says Shelby McFaddin, investment analyst at Motley Fool Wealth Management.

"After you chase returns you get a little out of breath, and it becomes time to reach out for that quality diversification," said McFaddin.

Bitcoin reaches new 13-month high

Bitcoin reached a new 13-month high on Thursday after an endorsement from BlackRock chief executive and former skeptic Larry Fink.

The cryptocurrency rose to about $31,500 a coin early Thursday morning, marking its highest level since last June.

Bitcoin can "revolutionize finance," Fink said Wednesday in a TV interview with Fox Business, adding that he believes "the underlying technology is fantastic."

The Federal Reserve released its June meeting minutes the same day, reaffirming its dedication to fighting inflation and its prediction that the economy could tip into a mild recession later this year.

But "bitcoin is ignoring the hawkish noise coming out of the Fed and dancing to its own beat," said Antoni Trenchev, co-founder and managing partner of crypto lender Nexo.

Bitcoin later pared back its gains after red-hot jobs data triggered a broad sell-off across markets.

The cryptocurrency's new high this year comes after it rose above $31,400 a coin last month, boosted by BlackRock's application to register a bitcoin spot exchange-traded fund and the launch of a digital asset trading platform from crypto exchange EDX Markets, which is backed by firms such as Charles Schwab, Fidelity Digital Assets and Citadel Securities.

Meta's new Threads app off to promising start

Facebook-parent Meta Platforms has launched Threads, its social media platform to compete with Twitter. The app is off to a strong start, reports my colleague Clare Duffy.

Dubbed by some as the potential "Twitter killer," the app received 30 million sign-ups as of Thursday morning, according to Meta.

Meta shares rose to $298.12 on Thursday morning, a 52-week high, before paring back their gains.

Twitter users have criticized changes that chief executive Elon Musk has made to the platform, including loosening its hateful conduct policy, implementing a data paywall and more recently, applying temporary limits to how many tweets users can read per day based on their verification status.

While it's too soon to tell, that means that Threads could pose a serious threat to Twitter.