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As Major Tech ETFs Dip, Investors Get Jitters

This article was originally published on ETFTrends.com.

Several major tech ETFs have dipped over the past month, elevating investors' jitters toward these once hot funds. That includes the The PowerShares QQQ (QQQ) , which tracks the tech-heavy Nasdaq-100 Index, and the Technology Select Sector SPDR (XLK),  the largest tech ETF by assets.

Stocks such as Apple (AAPL), Google parent Alphabet Inc. (GOOG), Facebook Inc. (FB) and Microsoft Corp. (MSFT) are pivotal to QQQ’s performance. That quartet combines for a massive percentage of QQQ and XLK.

“In Q1 2018, we saw the first quarterly outflows from this asset class since 2016, though the net outflow of $151m is not significant compared with the $88bn in Q4 inflows,” according to IHS Markit. “So far in Q2, the outflow trend has continued, but with the quarter being one week old that could easily reverse if the market is able to find its footing.”

Related: Tech ETFs Down But Not Out

With technology’s ascent and that of QQQ, come concerns that the Nasdaq-100 is too heavily exposed to a small number of stocks. Additionally, some analysts opine that the benchmark’s significant technology overweight leaves it vulnerable should tech stocks fall out of favor.

Slight Outflows in Technology ETFs

Broadly speaking, US-listed technology ETFs have not lost money on a quarterly basis since the second quarter of 2016 and four of the previous six quarters have seen massive amounts of capital flow into tech ETFs. To start the current quarter, outflows, though modest, are what tech ETFs are contending with.

“One sector ETF investors did not shy away from in Q1 was Technology sector focused funds, which saw a 2nd consecutive quarter of greater than $2.5bn of inflows. The opening days of Q2 have seen $350m in outflows, suggesting investors may be starting to rotate away from the sector,” according to Markit.

Related: Two ETFs to Tap Blockchain, Autonomous Vehicles

XLK includes companies from technology hardware, storage, and peripherals; software; diversified telecommunication services; communications equipment; semiconductors and semiconductor equipment; internet software and services; IT services; electronic equipment, instruments and components; and wireless telecommunication services.

For more news and strategy on the Technology market, visit our Technology category.

Tom Lydon’s clients own shares of QQQ, Apple, Facebook and Microsoft.