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Chip ETF reports 3-day inflow of $629M despite Nasdaq rout

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The FAANG cratering has done nothing to stanch the appetite of ETF investors in other parts of the technology space.

They poured $175 million into the VanEck Vectors Semiconductor ETF (SMH) on Monday, boosting the inflow since Thursday to $629 million. That’s the biggest three-day intake since April, data compiled by Bloomberg show. In contrast, eight days of withdrawals from the Invesco QQQ Trust Series 1 ETF (QQQ) have drained $3.2 billion from the fund.

It’s more evidence investor angst is confined to the highest-flying tech segment and not the industry at large. Strong chipmaker earnings from Advanced Micro Devices to Xilinx and Taiwan Semiconductor Manufacturing are helping the sector withstand a rout in a broader tech index, which posted the biggest three-day drop since March after Facebook’s user growth miss.

Declines in the FAANGs sent ripples to chipmakers, pushing the group lower on Friday and Monday. But the move was nowhere close to a slump in tech mega caps since Facebook’s miss.

“If they can hold up, it will lower the odds considerably that the other big-cap momentum names will see another leg lower,” said Matt Maley, equity strategist at Miller Tabak.“Of course, all bets will be off if Apple gives us a lousy earnings report tonight (they’re a huge buyer of chips), but right now, the action in the semis is definitely positive.”

Apple’s earnings report, due after the market close on Tuesday, will either send chipmakers higher or push the group lower together with a broader gauge of tech stocks. Apple is the main customer of Taiwan Semiconductor Manufacturing, the largest holding in SMH. Half of the stocks in the iShares PHLX Semiconductor ETF (SOXX) rely on Apple for a portion of their revenue. The fund took in $129 million on Monday, widening its two-day inflow to $203 million.

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Apple’s earnings could provide a much-needed lift to broader tech ETFs such as the QQQ and the XLK, as the Technology Select Sector SPDR ETF (XLK) is also known. Apple makes up 14% of the fund, its largest holding, and about 30% of the portfolio is in Facebook, Microsoft and Google, which may also move on Apple’s report. Apple makes up 11% of the QQQ.

The past couple of days have been rough for the largest ETF tracking the Nasdaq 100. Investors pulled $1.3 billion from the fund on Monday in biggest withdrawal since April and the largest outflow among more than 2,000 American ETFs. The fund’s eight-session streak of outflows is its longest since March.

The fund is still up 13% this year after a 31% run in 2017. Zoom out a little further, and the fund’s run is not that impressive. Since the U.S. market bottomed out from a correction in early 2016, the ETF is up 83%, compared with a 146% run in SOXX.

“Even though the FAANG complex has been on fire and growing in influence, there (have) still been plenty of secondary and tertiary Technology names that have not broken down,” said Frank Cappelleri, senior equity trader at Instinet. “In order for the Growth trade to persist, the Semis must maintain their buoyancy.”

Bloomberg News