A week of good earnings reports could not stem the tide of outflows from the major Sector Fund groups tracked by EPFR, as rising interest rates and signs momentum for the global economy may be slowing prompted investors to harvest long-term gains. Of the 11 major groups, only Commodities, Consumer Goods, Technology and Utilities Sector Funds posted net inflows for the week ending May 2.
Benefiting from stellar earning reports for some of the big tech names, Technology Sector Funds experienced the largest inflow of any group and their largest net inflow since the second week of March. Eight of the 10 funds with the biggest inflows for the week were exchange traded funds, with nine of the 10 have a U.S. geographic focus. Withstanding downward pressure from chip makers due to concerns about soft smartphone chip sales, two of the top three funds have semiconductor mandates.
Despite having the second highest number of companies missing earnings estimates during the first quarter, Utility Sector Funds chalked up their largest weekly inflow since June of 2017. In addition to the relatively soft earnings, Utility Sector Funds are contending with higher interest rates that encourage yield-seeking investors to rotate back to low-risk Treasurys.
Financial Sector Funds experienced the largest outflow this week. It was the third time in the past four weeks this group has suffered net redemptions. With European and Chinese banks facing the prospect of less liquidity and tighter regulations, and the U.S. Treasury yield curve flattening, investors are starting to take the profits that have accumulated since the election of U.S. President Donald Trump in 4Q16.
Industrial Sector Funds experienced fresh outflows—their third in the past four weeks—as warnings about global growth and future corporate earnings weighed on investors assessing this historically cyclical sector.