A $1.3 Billion Leveraged Bet Against Tech Sees Record Outflows

Investors in exchange-traded funds are clinging to their bets on big tech even as the high-flying sector has lagged behind the broader market over the past week.

The $1.3 billion ProShares UltraPro Short QQQ ETF (ticker SQQQ) -- which delivers results that are three times the inverse performance of the tech-heavy gauge -- posted a $333 million outflow last week. Meanwhile, cash continued to flow into the $11 billion ARK Innovation ETF (ticker ARKK) and the $1.4 billion Global X Cloud Computing ETF (ticker CLOU), according to data compiled by Bloomberg.

Technology companies with solid balance sheets and products that benefit from social distancing slumped last week after Pfizer Inc. announced positive results of its vaccine study. Meanwhile, traders rushed into economically-sensitive stocks such as industrial and energy companies. While big tech underperformed again on Monday as Moderna Inc. said its Covid-19 shot was highly effective, tech shares were still up for a second day. For Dan Suzuki at Richard Bernstein Advisors, that may be a sign that some investors are hesitant to throw in the towel on the safety trade that has powered this year’s gains in equities.

“Major changeovers in leadership, market and otherwise, are often met with tremendous skepticism. And in this case, you’re talking about leadership that has lasted over a decade,” said Suzuki, the firm’s deputy chief investment officer. “Anytime over the past 10 years that investors have lost faith in tech leadership, they have been burned.”

A $1.3 Billion Leveraged Bet Against Tech Sees Record Outflows

While there’s hope that a widely distributed vaccine would usher in an economic reopening that could lift beaten-down sectors, that wouldn’t necessarily be a death knell for tech, according to Wells Fargo Investment.

“Tech and tech-related stocks did really well prior to Covid, which shows tech doesn’t need Covid to do well,” said Sameer Samana, the firm’s senior global market strategist.

©2020 Bloomberg L.P.

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