ETF investors might be quietly positioning for a change in market leadership, and the money is flowing into the real economy.

Recent flow data from State Street Global Advisors shows that sector ETFs attracted about $10 billion in February, following robust inflows in January. This is one of the strongest starts to a year for sector ETFs. Most of the money is flowing into cyclical industries like energy, materials, and industrials, signalling a diversification away from tech-heavy growth ETFs (which clocked outflows) and increasing exposure to value-oriented sectors.

These cyclical industries attracted approximately $8.5 billion in inflows, making up about 65% of total sector ETF inflows, despite these industries holding a smaller percentage of total sector assets, which is 47%. This might be an indication that investors are positioning their portfolios for an expansion beyond the technology-driven rally that has dominated markets in recent years.

Energy ETFs Draw Fresh Interest

Energy funds were among the biggest beneficiaries of the shift. One of the largest sector ETFs that tracks major U.S. energy companies has seen renewed interest from investors amid volatile oil prices. The Energy Select Sector SPDR Fund (NYSE:XLE) continues generating strong cash flows.

Energy stocks, in particular, tend to do well when there is increasing demand as well as inflationary pressures. Therefore, these stocks could be attractive investment options for those looking for diversification beyond technology stocks.

Industrials And Materials Join The Rally

Besides technology, industrials and materials sector ETFs have also seen steady investment inflows. For instance, the Industrial Select Sector SPDR Fund (NYSE:XLI) seeks to track companies that are involved in manufacturing, transportation, as well as infrastructure, which tend to do well when there is economic growth.

Additionally, another sector that is witnessing investment inflows is the materials sector. For instance, the Materials Select Sector SPDR Fund (NYSE:XLB) seeks to track companies that are involved in chemicals, metals, as well as construction materials, which tend to do well when there is increasing demand for these materials globally.

The growing demand for these ETFs suggests investors may be anticipating a phase where market gains broaden beyond a narrow group of technology giants.

Photo: Shutterstock