AI ETF Inflows Slow as Investors Worry About Rising Interest Rates

Inflows into exchange-traded funds (ETFs) tracking artificial intelligence (AI) companies have slowed down in recent months, as investors express concerns about the impact of rising interest rates on company valuations. The Global X Robotics & Artificial Intelligence ETF and the ROBO Global Robotics & Automation Index ETF experienced mixed inflows and outflows in September, following a period of significant inflows earlier this year.

According to Lipper data, the Global X fund received $1.8 million in net inflows in September, while the ROBO Global fund saw outflows of $14.3 million. Both funds had their highest monthly net inflows of 2023 in June, with the Global X fund gaining $265.5 million and the ROBO Global fund receiving $29.74 million. Overall, AI and robotics-focused ETFs attracted over $1.9 billion in inflows during the first three quarters of the year.

The recent moderation in inflows can be attributed to market concerns that interest rates may remain high for an extended period, which could impact tech firms with cash flows further into the future, explained Aniket Ullal, head of ETF data and analytics at CFRA Research. Additionally, retail investor flows into the sector have cooled down as the initial excitement surrounding AI begins to fade. September recorded the lowest net monthly retail flows into AI-linked stocks since April, according to Vanda Research.

Investors have also been taking profits after the strong rally in AI stocks this year. Despite the recent market volatility, the Global X fund is still up 21% year-to-date, supported by the surge in megacap chipmaker Nvidia, whose stock price has increased over 200%.

Despite the temporary setbacks, investors remain optimistic about the long-term prospects of the AI sector. Mark Haefele, chief investment officer at UBS Global Wealth Management, sees the recent weakness as an opportunity to add exposure to AI leaders. Ullal from CFRA Research also believes that the negative sentiment could reverse in the fourth quarter, especially if large-cap tech stocks like Nvidia, held in AI-themed tech ETFs, continue to demonstrate strong earnings growth.

While AI ETF inflows have slowed down in the face of rising interest rates and market volatility, industry experts and investors remain confident in the future potential of the sector.