Financial Services Association, September 10 (Editor: Xiaoxiang) Although US stock investors are still investing heavily in some cutting-edge technology stocks this year, in the American community, some old-school bets have unexpectedly become mainstream now: betting on industry...

As the US government embarks on a long-term plan to improve America's self-sufficiency while dealing with climate change, while US companies want to strengthen domestic supply chains after the pandemic rages on, combined with geopolitical pressure and growing demand for new energy infrastructure, investment across the US industry seems to be reviving.

This has prompted many ETF investors to choose to invest more in industrial funds, even though a series of challenges in this field still exist — such as a marked slowdown in US manufacturing activity and doubts about US consumer demand for commodities.

The most typical example behind this phenomenon is the Global X US Infrastructure Development ETF (PAVE), which has now replaced Wall Street's “female shareholder”, the ARK Innovation ETF (ARKK) of Cathie Wood, and has become the largest themed fund in the US.

According to data compiled by the industry, after PAVE attracted nearly $1.5 billion in capital inflows this year, the asset size has reached 7.5 billion US dollars. Meanwhile, ARKK's asset size has plummeted from nearly 9 billion US dollars at the beginning of this year to about 5.2 billion US dollars due to capital outflows every quarter so far this year.

Many popular funds recently launched in the US market are also focusing on industry. For example, Global X just launched an infrastructure fund with the code IPAV last month. The fund invests in non-US infrastructure companies. Additionally, BlackRock launched the iShares US Manufacturing ETF (MADE) in July, while Tema launched the US Corporate Return ETF (RSHO) in May of last year.

This trend highlights investment in the traditional real economy, which is beginning to be increasingly sought after by American citizens. However, people's desire to invest in technology companies that claim to be “disruptive but almost universally unprofitable” favored by Cathie Wood and others has clearly waned.

The direction of the wind has changed

Todd Sohn, ETF strategist at Strategas, said that the poor performance of technology-focused thematic funds, including ARKK, has boosted investors to switch to ETFs that focus on industry.

He pointed out that infrastructure and industrial funds are more resilient in the face of market fluctuations. The industry includes many subsectors and can adapt to different economic environments.

Among the themed ETFs tracked by the industry, PAVE had the largest inflow of capital this year. The fund's major holdings include fluid transmission products and systems manufacturer Parker Hannifin and Joint Leasing Company, the world's largest equipment leasing company.

First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) ranked second in terms of capital inflows, and more than half of the fund's holdings are in the industrial category. The fund has “sucked in” $0.667 billion during the year.

Among the top ten funds for capital inflows, two industrial ETFs, RSHO and iShares U.S. Infrastructure ETF (IFRA), also stand out — the former absorbed $83 million, while the latter absorbed $78 million.

On the other hand, according to data compiled by the industry, ARKK will have a net outflow for the third consecutive quarter this year, which is the worst continuous outflow record since the fund was established in 2014. With capital outflows reaching 2.4 billion US dollars this year, Cathie Wood's flagship fund is poised to usher in the worst year of capital outflows.

In addition to ARKK, other funds in Cathie Wood's Ark Fund have now also been widely rejected by investors: Ark Next Generation Internet ETF (ARKW) and Ark Biogenics Technology Innovation Active ETF (ARKG) each flowed out more than 0.4 billion dollars during the year, while the Ark Fintech Innovation ETF (ARKF) and Ark Autonomous Technology and Robotics ETF (ARKQ) each had outflows of about 0.3 billion dollars.

That's not to say investors have completely lost interest in tech stocks — since this year, the biggest tech giants have led the US stock market to a sharp rise. At the same time, however, technology stocks that have not been profitable for a long time or are highly speculative have performed poorly, leaving many investors disappointed.

According to the data, the index of a basket of unprofitable technology companies has fallen by more than 13% so far this year, while the Nasdaq 100 index has risen 10% over the same period.

Roxanna Islam, head of industry research at TMX Vettafi, said: “In a situation where market uncertainty is increasing and allocable capital is decreasing, investors are leaning towards putting in place more realistic investment ideas. Compared to disruptive technology funds such as ARKK, industrial themes such as infrastructure and manufacturing return can provide a relatively safer growth story, while disruptive technology funds such as ARKK have recently been more related to risk rather than return.”