Retail investors are returning to the technology sector. The total assets of the Rydex Technology Sector Fund have swelled to $85 million, easily exceeding the previous top in total assets that marked the February 2011 market top.
Total assets in the sector usually tracks the performance of the underlying equities. In the chart below you can compare the SPDR Technology ETF (XLK) with the total Rydex Technology Fund:
As you can see, usually we see retail traders chase performance. Major inflows into the fund presage intermediate market tops and when retail investors shun the sector, we see important market bottoms.
That pattern is true for the most part. Although, there are a few exceptions. For example, while the assets in the Rydex fund surged again in October 2006, the underlying stocks continued to do well for a few months (into December 2006).
Barring a few exceptions like that, the current excitement from retail investors should warrant caution. Especially since the increase in assets in the fund comes when it is still below its February 2011 top.
The technology sector was also the third most favourite sector in the recent Barron’s Big Money Poll (more on this in tomorrow’s weekly sentiment overview). So it isn’t just the retail investors who are clamoring for it.