Despite the significant investments in some cutting-edge technology stocks by US stock investors this year, in the US fund circle, some old-fashioned bets have unexpectedly become mainstream: betting on the industrial sector...

As the US government is implementing a long-term plan to address climate change and enhance US self-sufficiency, and US corporations hope to strengthen domestic supply chains after the pandemic. In addition, geopolitical pressure and growing demand for new energy infrastructure have revitalized investment in the entire US industrial sector.

This has prompted many ETF investors to allocate more funds to industrial funds, even though this sector still faces a series of challenges, such as a significant slowdown in US manufacturing activities and uncertainties in US consumer demand for goods.

The most typical example behind this phenomenon is: Global X US Infrastructure Development ETF (PAVE), which has surpassed Cathie Wood's ARK Innovation ETF (ARKK) and become the largest thematic fund in the US.

According to compiled data from the industry, PAVE has attracted nearly $1.5 billion of inflow this year, and its asset size has reached $7.5 billion. Meanwhile, ARKK has experienced outflows every quarter this year, and its asset size has plummeted from nearly $9 billion at the beginning of the year to about $5.2 billion.

Many popular funds recently launched in the US market are also focused on the industrial sector. For example, Global X just launched the Infrastructure Fund with the code IPAV last month, which invests in non-US infrastructure companies. In addition, BlackRock launched the iShares US Manufacturing ETF (MADE) in July, and Tema launched the US Corporate Repatriation ETF (RSHO) in May last year.

This trend highlights the increasing popularity of investments in the traditional real economy among US fund investors. The desire to invest in disruptive but largely unprofitable technology companies, favored by Cathie Wood and others, has significantly weakened.

The wind direction has changed.

Strategas' ETF strategist Todd Sohn said that technology-focused thematic funds, including ARKK, performed poorly, prompting investors to shift their focus to industrial-focused ETFs.

He pointed out that infrastructure and industrial funds are more resilient in market volatility. This industry includes various sub-sectors that can adapt to different economic environments.

Among the theme ETFs tracked in the industry, PAVE has had the largest inflow of funds this year. The fund's major holdings include fluid transmission product and system manufacturer Parker Hannifin and global equipment rental company United Rentals.

The second largest inflow of funds is from the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID), which holds more than half of its shares in the industrial sector. The fund has already attracted $0.667 billion in investments this year.

Among the top ten funds in terms of inflows, RSHO and iShares U.S. Infrastructure ETF (IFRA) are also outstanding performers in the industrial ETF category - the former has attracted $83 million and the latter has attracted $78 million.

On the other hand, according to industry compiled data, ARKK is expected to experience net outflows for the third consecutive quarter this year, marking its worst continuous outflow record since its inception in 2014. With outflows reaching $2.4 billion this year, this flagship fund of Cathie Wood will face the most severe outflows.

In addition to ARKK, other funds in Cathie Wood's Ark Funds have also been widely abandoned by investors: Ark Next Generation Internet ETF (ARKW) and Ark Genomic Revolution ETF (ARKG) have outflows of over $0.4 billion this year, while Ark Fintech Innovation ETF (ARKF) and Ark Autonomous Technology & Robotics ETF (ARKQ) have outflows of approximately $0.3 billion respectively.

This does not mean that investors have completely lost interest in technology stocks - so far this year, the largest technology giants have still led the surge in the US stock market. However, at the same time, technology stocks that have not been able to achieve long-term profitability or have a high speculation factor have performed poorly, disappointing many investors.

Data shows that a basket of unprofitable technology companies' index has fallen more than 13% year-to-date, while the Nasdaq 100 index has risen 10% during the same period.

Roxanna Islam, Director of TMX VettaFi Industry Research, said, "In an environment of increased market uncertainty and decreased available funds, investors are tending to allocate to more practical investment ideas. Compared to disruptive technology funds like ARKK, industrial themes such as infrastructure and manufacturing reshoring can provide a relatively safer growth narrative, while disruptive technology funds like ARKK have recently shown a higher association with risk rather than return."

Editor/Lambor