ETF Investors Just Can't Stop Following Last Year's Trends

(Bloomberg) -- The health-care sector is slipping, while energy is soaring. Somebody tell exchange-traded fund investors.

More than $3 billion flowed out of ETFs tracking the energy sector in January, the largest monthly outflow since at least 2012, data compiled by Bloomberg Intelligence show -- even as energy stocks started off the year with an 11 percent surge. Meanwhile, health care, which blew out the competition last year, was the second-worst performing sector in January. Still, investors poured $337 million into health-care funds, making it number two for inflows so far.

“We generally see inflows in areas that have done well and outflows in areas that haven’t done well,” Michael Crook, head of Americas investment strategy for UBS Global Wealth Management, said by phone. “It could simply be that some investors are making changes, and unfortunately that tends to happen looking in the rear-view mirror in a lot of cases as opposed to being a bit contrarian about where the flows should go.”

ETF Investors Just Can't Stop Following Last Year's Trends

The largest ETF focused on energy, the $13.1 billion Energy Select Sector SPDR Fund, or XLE, hasn’t seen a single week of inflows this year and just logged its worst month on record as the ETF bled cash -- $1.8 billion to be exact. That’s in contrast with oil’s 18 percent gain in January, a record start to a year, after a more than 40 percent plunge last year.

Plus, the earnings season has been stellar for energy firms. With a third done reporting, the sector has seen the largest average earnings surprise. At 22 percent, that’s almost eight times the size of the average profit surprise across the entire S&P 500. Chevron Corp. and Exxon Mobil Corp. posted better-than-expected results Friday.

While energy has gone from laggard to leader, health care was the second-worst performing sector in January. Its about 4.5 percent return fell well short of the S&P 500’s almost 8 percent gain. Still, the equity sector garnered the second-most cash through ETFs, a spot it held at the end of 2018.

ETF Investors Just Can't Stop Following Last Year's Trends

Health care has been seen as a defensive play, but one that still maintains growth characteristics. So the inflows could be a signal that investors are cautious about the future, with trade deals up in the air, the potential for another U.S. government shutdown and global growth concerns.

“People may have been moving the money from those higher volatility sectors like energy to lower volatility, more stable stocks for the coming year just to escape the volatility,” said Mariann Montagne, a portfolio manager at Gradient Investments.

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