Fund Flows Reflect Tech-Stock Domination—Before Investors Rotated

Group 1: Investment Flows and Market Trends - Large technology stocks have dominated the U.S. stock market in 2023, with technology funds attracting $4.2 billion in net inflows in Q2 and $17 billion in the first half [1] - Only two sectors, industrials and financials, had net positive flows among the 10 sectors in the S&P 500 Index [1] - Large value stocks experienced significant net outflows of $7.8 billion in Q2 and $18.1 billion in the first half, indicating a shift in investor focus [1] Group 2: Performance of Key Stocks - Three large tech stocks—Nvidia, Alphabet, and Microsoft—accounted for nearly half of the S&P 500's 15% gain in the first half of the year [2] - Following July 10, these stocks saw a decline as investors shifted towards small-cap stocks, anticipating benefits from expected interest rate cuts [2] - The Russell 2000 Index of small-cap stocks surged by 9% during this rotation [2] Group 3: Bond Fund Inflows - Bond funds attracted $68.4 billion in net inflows in Q2, significantly outpacing equity funds, which had $14 billion in net positive flows [3] - Intermediate core bond funds led with $69.1 billion in net inflows in the first half, highlighting strong investor interest in fixed-income assets [3] - Expectations of Federal Reserve interest rate cuts contributed to the positive outlook for bond funds [3] Group 4: Active vs. Passive ETFs - Actively managed ETFs gained market share in Q2, with $56.8 billion in net inflows, increasing total assets to $650.8 billion [4] - Active ETFs captured one-third of all ETF net inflows during the quarter, now representing 7.1% of total ETF assets [4] - Among fixed-income ETFs, active strategies accounted for 35% of net inflows, while they constituted 27% of equity ETF net inflows [4]