(Bloomberg) -- Wall Street traders may be going all-in on futuristic technologies this year, but one old-school bet on the economy is still flourishing in the world of ETFs: industrials.
The federal government is embarking on a long-term project to boost US self-sufficiency while also combating climate change, and US businesses are looking to beef up domestic supply chains after the pandemic fallout. Add geopolitical pressures, combined with growing demand for new energy infrastructure, and the whole industrial sector is getting a reboot. That’s spurring investors to sink their capital in industrial ETFs across the board, even amid a pronounced slowdown in manufacturing activity and question marks about demand for goods among US consumers.
The best example: the Global X U.S. Infrastructure Development ETF (PAVE) has dethroned Cathie Wood’s ARK Innovation ETF (ticker ARKK) — a poster child for the innovation-based investment thesis — as the biggest thematic fund. The US infrastructure product from issuer Global X stands at $7.5 billion in assets after adding nearly $1.5 billion this year, according to data compiled by Bloomberg. ARKK, thanks to outflows every quarter so far this year, now holds about $5.2 billion in assets. It had started the year with nearly $9 billion.
A number of recent launches have also focused on the industrials theme, with Global X debuting an infrastructure fund under the ticker IPAV, which excludes US firms. Meanwhile, BlackRock launched the iShares U.S. Manufacturing ETF (MADE) in July, and Tema put out its American Reshoring ETF (RSHO) in May of last year.
It underscores how traditional real-economy wagers are still in demand, while traders have less appetite for once-alluring investments in disruptive, yet largely unprofitable, tech companies favored by the likes of Cathie Wood.
A dismal performance from the tech-focused thematic funds — including ARKK — has helped push investors toward industrials-focused ETFs, says Todd Sohn, an ETF strategist at Strategas.
“Infrastructure and industrial-type funds can have a longer shelf life as a thematic play,” he said. “Also, industrials as a sector are very diverse, so playing more concentrated routes, such as infrastructure or reshoring, makes sense and adds to the shelf life of the theme.”
Among thematic ETFs tracked by Bloomberg, PAVE has seen the biggest inflows this year, raking in roughly $1.5 billion. The fund is loaded with industrial stalwarts like Parker-Hannifin Corp., United Rentals Inc. and Norfolk Southern Corp. In the second spot is the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID), which has more than half its holdings falling under the “industrials” label. It’s taken in $667 million in 2024. Among other standouts in the top-10 list of inflows is RSHO, with $83 million, and the iShares U.S. Infrastructure ETF (IFRA), which has taken in $78 million.
ARKK, on the other hand, is on pace for its third consecutive quarterly outflow, its worst string of outpourings since its 2014 inception, according to Bloomberg-compiled data. With $2.4 billion leaving this year, it’s on pace for its worst year of outflows. Other funds from the Ark lineup have also suffered: the ARK Next Generation Internet ETF (ARKW) and the ARK Genomic Revolution ETF (ARKG) have each seen more than $400 million come out, while the ARK Fintech Innovation ETF (ARKF) and the ARK Autonomous Technology & Robotics ETF (ARKQ) have notched outflows of roughly $300 million each.
That’s not to say investors don’t have appetite for tech exposure — the biggest behemoths have famously been shepherding the market higher this year. It’s the profitless or highly speculative tech bets that have left many reeling recently, given their recent underperformance. An index of non-profitable tech firms is down more than 13% this year, which compares with a 10% rise in the Nasdaq 100.
“Investors tend to go for more tangible investment ideas when there’s more market uncertainty and less money to allocate,” said Roxanna Islam, head of sector and industry research at TMX VettaFi. “Industrial themes like infrastructure and reshoring can offer a relatively safer growth story than disruptive technology funds like ARKK, which have lately become more associated with risk than return.”
