When narrative gets loud, money whispers the truth. Three-month ETF creations/redemptions give you a clean read on where risk is actually getting funded… and for how long. Treat them as a momentum filter to separate durable rotations from headline sugar highs.
Defense: Primes vs. Suppliers (ITA vs XAR)
If the move is real, confirmation spreads: ITA (primes) usually attracts first-wave creations on backlog visibility; XAR (equal-weight suppliers) follows when the supply chain starts to price growth.
Mind the divergence: ITA ↑ while XAR flat = “safety bid,” not a full expansion. Fade chase until XAR’s 13-week flow turns positive.
Signals to watch: Procurement headlines, backlog mentions, and 1-/13-week flow breadth.
Energy: Integrated yield vs. Upstream beta (XLE vs XOP)
XLE flows = yield preference: When crude chops, creations favor dividend/buyback ballast.
XOP flows = beta appetite: When price momentum and balance-sheet tolerance rise, XOP leads.
Rotation rule: Favor XLE while cash-like vehicles attract assets. Pivot to XOP when XOP’s 13-week creations lead and WTI prints higher highs.
Cash Yield: The silent competitor
Rising inflows to ultra-short and money-market ETFs lift the hurdle rate. Require cleaner catalysts and tighter risk on XOP/XAR setups.
Track weekly redemptions/creations and AUM-normalized flow to spot regime shifts early.
Founder/Investor Takeaway
Let flows refine, not replace, your thesis. Pair the 13-week flow trend with price and breadth. Size positions to “flow breaks” (two red weeks + price < 20-day). Communicate what capital is rewarding: Backlog quality, distribution policy, and unit economics that survive flat pricing.
Bottom Line
ETF flows are a real-time vote on where profits look defendable: State-backed demand (defense) and free-cash-flow compounding (energy). Use the current to find leadership, then let fundamentals tell you how far it can run.
