As US Equity Funds Bleed $18 Billion, Sector ETFs Offer Tactical Opportunities: XLK, XLI, ROBO In Focus

As broader U.S. equity funds suffered their largest weekly outflow of $18.43 billion since March this week, according to LSEG Lipper as cited by Reuters, one corner of the market quietly shined: sector ETFs. Despite the risk-off mood driven by intensifying Israel-Iran tensions and uncertainty around U.S. tariffs, investors poured money into focused plays, signaling a tactical rotation rather than a wholesale retreat.

Also Read: Consumer Spending Slips, But These Niche Retail ETFs Are Defying The Downtrend

Tech and industrial ETFs were the week's breakout stars, absorbing $1.85 billion and $445 million in inflows, respectively. This marks the fourth straight week of sectoral ETF gains, even as large-cap, mid-cap, and small-cap equity funds all bled red ink.

So, where is the “smart” money flowing, and why?

Sector ETFs To Watch

Technology ETFs: Betting On Resilience And AI Tailwinds

Tech continues to draw interest as investors seek exposure to innovation and growth even in uncertain times. The sector’s relative insulation from geopolitical strife and the ongoing AI boom likely contributed to this surge.

Top Picks:

• Technology Select Sector SPDR Fund (NYSE:XLK): Blue-chip heavy with Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and NVIDIA (NASDAQ:NVDA).
• Vanguard Information Technology ETF (NYSE:VGT): A broader tech play with strong diversification.
• ROBO Global Robotics and Automation Index ETF (NYSE:ROBO): For those leaning into automation and AI trends. Top holdings include Symbotic (NASDAQ:SYM), Rockwell Automation (NYSE:ROK), and Celestica (NYSE:CLS).

Industrial ETFs: Infrastructure And Defense Boost

Industrials are gaining favor amid expectations of increased infrastructure spending and growing demand for defense and manufacturing equipment, especially in the light of global tensions.

Top Picks:

• Industrial Select Sector SPDR Fund (NYSE:XLI): A solid all-around industrials fund with exposure to companies like Raytheon (NYSE:RTX) and Honeywell (NASDAQ:HON).
• Invesco Aerospace & Defense ETF (NYSE:PPA): A niche option benefiting from the defense sector rally. Top holdings include General Electric (NYSE:GE) and General Dynamics (NYSE:GD).
• iShares U.S. Infrastructure ETF (BATS:IFRA): Capitalizing on the ongoing U.S. infrastructure push with holdings in the likes of Sterling Infrastructure (NASDAQ:STRL), Raytheon and Axon Enterprise (NASDAQ:AXON).

Financials Falter, But Don't Count Them Out

While the tech and industrial boats raced ahead on tailwinds, financial ETFs saw $1.22 billion in outflows, suggesting investor unease about profitability under sticky inflation and a "higher for longer" interest rate regime. One can consider keeping an eye on the Financial Select Sector SPDR Fund (NYSE:XLF) and the SPDR S&P Regional Banking ETF (NYSE:KRE), but only if rate and lending conditions stabilize.

The Takeaway

Investors aren't abandoning the market, they're just getting choosier. With geopolitics and economic uncertainty muddying the waters, sector ETFs are emerging as a tactical safe haven for capital.

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