ETF Trends from the RBC Capital Markets Trading Floor

July was the month of the semiconductor with chip ETFs hotter than a summer barbecue. Investors doubled down on the AI-driven semiconductor trade with extraordinary conviction last month, pouring over $28 billion into US-listed semiconductor and memory chip ETFs, despite the underlying stocks moving lower. Meanwhile, the broader ETF industry continued its march toward a historic year with Canadian ETF AUM passing over the $1.1 trillion level as July was the second highest month ever for fund flows in Canada. Acceleration continues in the US as well, if it continues at this pace, US ETFs could hit a full-year run-rate of $2 trillion in ETF inflows, which would shatter last year's record by more than 30%. Record ETF adoption shows no signs of slowing down, and the product shelf keeps expanding to meet the insatiable demand as evidenced by the number of Canadian-listed ETFs smashed through the 2,000 mark, with 2012 individual ETFs currently available.

On the performance side, July was a month of sharp and decisive rotation. Tech got hit hard towards the end of the month, with the Technology sector dropping 5.5%. Meanwhile Energy stocks surged an eye-catching +12.7%, the single biggest sector move of the month by a wide margin. International developed markets outperformed US equities for the second consecutive month. The S&P 500 was essentially flat over the course of the month, which masked the significant dispersion happening underneath the surface. Financials along with defensive sectors like Staples (2.1%) and Healthcare (1.9%) all posted gains. On the flip side, the largest two semiconductor ETFs (SOXX and SMH) were down 20% in July.

Fixed income was the other major story in July, and a repeat of the more recent market dynamic we’ve seen with equities and bonds moving lower in tandem, in contrast to the historical belief that they are uncorrelated asset classes. Duration got punished harshly in July. For example, TLT, the long-bond ETF dropped 3.8% as the long end of the curve rallied and the US 30Y shot through the 5.2% level on worries. The short end held in and BlackRock's iShares 0-3 Month Treasury Bill ETF (SGOV) approached the $100 billion AUM mark after attracting an additional $30 billion in 2026 inflows, more than any other bond ETF and more than double its closest competitor. Investors are not totally abandoning fixed income, but they continue to show an aversion to duration risk.

Instead, investors are looking for alternative ways to bolster portfolios with income. We saw this unfold in the Canadian ETF marketplace with over $1 billion of inflows into dividend ETFs. Over 80 unique dividend ETFs listed in Canada had inflows this month. The category was led by Canadian-focused strategies like VDY, XDIV and TQCD, which have an overweight to domestic banks, energy and utilities companies. US Quality Dividend funds and International Dividend funds also attracted new capital.

Investors were also buying the semiconductor dip aggressively. SOXX attracted $9 billion of inflows, SOXL (the 3x leveraged semiconductor ETF, a riskier ETF intended for day trading more than investing) added $7 billion, and DRAM (the Roundhill Memory ETF) pulled in another $6 billion. All told, semiconductor ETFs attracted an additional $28 billion in fresh capital, despite – or perhaps in light of – the subsector's sell-off. The iShares MSCI South Korea ETF (EWY) attracted $5.6 billion in July, its largest month of inflows (since its launch in 2000!) as investors used it as a proxy to gain exposure to SK Hynix and Samsung following market exuberance around these two local chipmakers. Many investors clearly want to own the semiconductor supply chain and are finding that ETFs are the most efficient vehicle to gain ownership.