Investors once militant about throwing money at every market stumble are abandoning popular technology, US equity and thematic plays as the new year downturn continues into its third month.

Several of last year’s most popular ETFs saw net outflows for the first time since 2020, with the US-focused Nasdaq 100 (ASX: NDQ) and S&P 500 ETFs (ASX: IVV) among the worst hit. Struggling thematic and ESG-friendly funds saw new money slow to a trickle as investors increasingly opted for the sidelines or rotated into broad-based Australian equity funds.

The worst equity market selloff since the pandemic appears to be tempering enthusiasm for "buying the dip"—investing when prices drop in the belief rebounds will be swift and significant. Technology stocks boasting high price/equity ratios premised on sacrificing profit today for growth tomorrow have been among the hardest hit as markets reposition for rising interest rates here and overseas. The Nasdaq Composite is down 13% year-to-date, while the S&P/ASX All Technology is down 19%.

Fear is alive and well on Reddit. In one of this month’s most popular posts on the “Australian Stocks” online forum, a poster who claimed to have invested $165,000 in US and Australian equities since mid-January had “put the brakes on” after making repeated losses attempting to buy the dip.

“It's hard to not look every day at the rapidly declining worth of my portfolio,” said the anonymous investor in a post that generated over 50 comments and a heated discussion where many called for the individual to take the longer view and be patient.

“I almost feel like I should cash out now and invest after this potential global recession happens and re-enter at much lower prices.”

Amid bigger losses, investors are exercising more caution than they displayed during last year’s market dips. The Nasdaq Composite and S&P 500 declined about 5% each in September and new investor money into ETFs linked to the respective indexes barely missed a beat. Flows similarly held steady for thematic funds linked to battery technology and cybersecurity.

The BetaShares Nasdaq 100 ETF, the third most popular ETF in 2021, saw outflows this February for the first time since the pandemic selloff. Investors also pulled a net $44 million from the iShares S&P 500 ETF, breaking a 17-month streak of net inflows.

Not so hot

Restraint extended beyond the technology and speculative investments popular with retail investors on online forums. Flows into the broader exchange-traded fund industry slumped to the lowest level in five years in February.

Other popular funds hit by investor cold feet in February included the ETFS Battery Tech and Lithium ETF (ASX: ACDC), Australia’s best-performing ETF in 2020. Net flows dropped to $14.7 million, the lowest level since November 2020. Investors pulled a net $4 million from the BetaShares Global Cybersecurity ETF (ASX: HACK), the first negative net flows since the pandemic selloff.

Australia’s largest domestic sustainable equity fund had its worst month of performance since the pandemic in January and investors are showing little sign of dip-buying in response.

The $1.2 billion BetaShares Australian Sustainability Leaders (ASX: FAIR) saw net flows drop to $14.7 million in February, the second-lowest level in 20 months. Shares fell 10.8% in January as the fund’s overweight positions in healthcare, real estate and technology underperformed.

In a nod to the dangers of market timing, those sitting on the side-lines missed last week’s US equity rally, the biggest one-week gain since November 2020. The Nasdaq Composite rose 8.2% and emerged from bear market territory. The S&P 500 notched 6.1% and the S&P/ASX 200 rose 3.3%.

Australia’s share market has pared most of the year’s losses thanks to a commodity boom and an index overweight value-esque bank stocks benefiting from the prospect of higher rates. Investors like what they see and the Vanguard Australian Shares ETF (ASX: VAS) pulled in almost half a billion in net flows over January and February, the second-highest two month showing in more than a year.