ChatETP: July 2026
July Highlights
- Technology falls 13% month to date overall while semiconductors enter bear territory, dropping over 25%.
- Issuers continue to file increasingly complex event contract ETFs as they await the SEC’s decision on novel ETFs.
- Retail shifts focus from South Korea to emerging markets.
The State of the U.S. Market
After several months of outstanding returns, technology funds faltered, dropping 13% during the month. The sector is still up over 30% YTD. There was broad institutional selling as overleveraged hedge funds, most notably Situational Awareness, were forced to unwind positions in AI-adjacent hardware.
Even with the volatility technology funds experienced this month, the sector still saw healthy inflows. Investors may view this as a temporary setback rather than a systemic issue and could be looking to buy at lower prices because flows are still healthy. However, concerns about whether elevated capex spending will ultimately translate into profits may persist. Broad domestic and international equity funds also declined during the month for similar reasons. The AI trade is increasingly dominant across markets.
As technology fell, investors rotated into financials or continued allocating capital to money market funds. After years of being overshadowed by technology, financials may be benefiting from a renewed search for value and diversification. Cryptocurrency also posted positive returns and attracted inflows, continuing a trend of becoming increasingly uncorrelated with technology stocks. Together, these shifts suggest some investors may be looking beyond the AI trade and toward alternative sources of return.
South Korea's newly launched single-stock leveraged ETF market quickly became a victim of its own success. Following a surge in speculative activity centered on AI-related semiconductor names, regulators halted new listings on July 16th and proposed additional restrictions amid concerns that daily rebalancing activity was exacerbating volatility in Samsung and SK Hynix shares. Some leveraged funds dropped by nearly 80% from their peak.
The Tech Theme Shuffle
Earlier this year, we wrote about the growing divergence within technology as hardware surged while software lagged. Although the performance gap between technology subsectors remains wide, software has emerged as the strongest performer this month. While semiconductor-focused ETFs returned -28% during the month, they continued to attract significant inflows, suggesting investors remain confident in the longer-term outlook for the industry. Historically, technology subsectors have tended to move more closely together, but recent performance has challenged that pattern. As investors have now experienced periods where hardware outperformed while software declined, followed by the reverse, a more persistent divergence may be emerging, at least in the near term. Technology is beginning to behave less like a unified sector and more like a collection of distinct industries with their own drivers and risk factors. This shift has created a wider dispersion of returns across technology themes than investors are accustomed to seeing, lending itself to the increasingly hyper-specific fund launches we have seen in the past year.
South Korea Interest Surges
In July, U.S. investors significantly increased their exposure to South Korea despite a sharp selloff in semiconductor stocks. Nearly 6% of all flows into broad equity ETFs were directed toward South Korean investments, a remarkable jump from just 1.0% year-to-date. The surge suggests investors viewed the weakness in Korean equities, particularly within the semiconductor sector, as a buying opportunity rather than a reason to reduce exposure. Given South Korea's outsized role in the global semiconductor supply chain, the inflows may also reflect continued conviction in the long- term AI and hardware investment theme despite heightened volatility. Korean equities have become increasingly tied to investor sentiment surrounding memory chips and artificial intelligence infrastructure spending, making the country one of the most direct ways to express a view on the broader AI trade. Rather than rotating away from the theme as semiconductor stocks declined, flows show investors appeared willing to increase exposure, suggesting the selloff was viewed as a short-term dislocation rather than a fundamental change in the outlook for AI-driven growth.
The U.S. Retail Report
July marked a decisive break from the previous quarters in 2026. After a first half of the year defined by aggressive retail participation in the AI-industrial complex, self-directed investors executed one of the cleanest rotations of the year by pulling capital out of the semiconductor and AI momentum trades and redeploying into value and defensives. The "chase the leaders" playbook that dominated Q2 2026 gave way to a more balanced, income-seeking posture, which closely mirrored the movement of the wider ETP market.
Here are some of the key takeaways for July:
Retail Is Unwinding the AI-Semis Trade
The magnitude of the semis/AI unwind (-4.8 percentage points of combined share) is the most important signal, because retail historically a momentum-following cohort is de-risking the year's most crowded trade. Whether July is remembered as a healthy consolidation or the opening act of a broader tech correction will hinge on the next two months.
Precious Metals & Energy Flip
Precious Metals share swung from -1.5% in June to +0.7% in July, the largest positive swing outside of large cap value, ending five months of net selling with $192M of retail buying. Energy share rebounded from -1.1% to +0.8% with $211M of net buying. Both moves coincide with renewed Middle East tensions, OPEC+ supply discipline chatter, and a softer dollar which demonstrated retail is buying the geopolitical risk premium rather than fading it.
Emerging Markets In, Korea Out
The share of emerging equity rose from 1.4% to 2.1% with $564M of July net buying, while global (ex-US) equity gained +1.3 percentage points of share. However, South Korea equity collapsed from +0.2% to -0.5% share and flipped to $135M of net selling, signaling the strong likelihood of a reflection of Samsung and SK Hynix exposure mirroring the broader semiconductor unwind. Retail allocations indicate retail is embracing the weaker-dollar/EM-value thesis but selectively, avoiding the geographies most connected to the AI capex cycle
Retail Opts Out Of U.S. Large Cap Equity Rally
After March 2026, U.S. Large Cap Equity experienced a striking bifurcation between the wider ETP market and retail investors: while total market cashflow into large cap surged to $84B in June and $64B in July, roughly 5x retail's contribution, retail net buying stayed flat throughout 2026.
The July data mirrors the 2026 trend when peeling back the layers and taking a closer look at retail's large cap growth net buying. Net buying held steady at $3.7B while market cashflow nearly quadrupled to $7.7B. Retail likely didn't sell, it appears they were simply lapped by the wider market’s bid.
Healthcare’s Three Act Play: From Yawn to Yes
Healthcare retail flows in 2026 moved through three distinct phases: tepid buying in January-February, three months of net selling from March through May driven by drug pricing fears, and election-year policy overhang, and a decisive reversal in June-July as retail net buying surged to $144M and then $216M.
Taken together, July's surge looks like a textbook late-cycle defensive rotation into quality, cash-generative healthcare, and if growth data continues to soften, it could mark the early innings of a sector re-rating that extends through the second half of 2026.
New Kids on the Block
U.S. New Filings and Launches
For the first time in nearly a year, projected launches are showing single stock funds being usurped by thematic equity. However, the funds being launched in the thematic equity space are of a similar tenor to single stock funds. Issuers, led by Corgi which was responsible for nearly half of all filings this month, are adding leverage to existing thematic funds, similarly to how they have previously added leverage to existing stocks.
Event contract ETFs continue to file while the SEC still debates if they are viable for launching in an ETF framework. Filings have become increasingly complex with Subversive Capital filing for two actively managed broad mandate event contract funds with the help of Tidal. White labelers have assisted in the increase in experimentation as it is much more affordable to launch an ETF with their help.
Corgi on Track to be Second Largest Issuer by Fund Count
Corgi, an issuer with just one listed fund a year ago, is on pace to become the second largest issuer by fund count by the end of this year. So far, the firm has launched 189 ETFs and has an additional 191 waiting in the filing pipeline. Corgi appears to be using a strategy traditionally employed by venture capital firms. It is launching a large number of funds and will likely not hesitate to quickly close those that fail to gather assets. Currently, the average AUM of a Corgi ETF sits at $4.4 million, compared with $91 million for the median U.S. ETF. While the issuer has achieved some success with its products the majority of its funds have yet to gain significant traction. It will be interesting to see whether this strategy proves sustainable and profitable over the long term.
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