Tue, 13/05/2014 - 16:07
Assets under management of short & leveraged (S&L) ETPs at the end of April totalled USD61.5 billion, down one per cent from the end of March and up six per cent from the end of December 2013, according to figures released by Boost ETP.
Investors in S&L ETPs can express bullish as well as bearish sentiment by investing in either a leveraged or a short ETP. Thus the AUM of S&L ETPs can reveal a broader range of investor sentiment than flows or AUM data for mutual funds and other ETPs.
Since S&L ETPs tend to be held for shorter periods and used more for tactical positioning, AUM and flows data for S&L ETPs can provide insight into the market sentiment of a relatively sophisticated set of investors.
S&L investors repositioned bearishly across major asset classes in April. Lacking momentum, the directionless equity markets have led S&L investors to reduce their bullish stance in equities, as the USD636 million redemptions in long positions contrasted the USD487 million creations in short positions. Coinciding with bearish net outflows from equities were net inflows into commodity ETPs, where S&L investors repositioned bearishly in energy and bullishly in precious metals. S&L investors’ bearish conviction in oil and natural gas was marked by the inflows into short products of respectively USD116 million and USD129 million, and by outflows from long products of respectively USD34 million and USD57 million. The USD39 million inflows into and USD15 million outflows from silver ETPs underscores S&L investors’ bullish conviction in silver. Albeit on a much smaller scale, flows in gold ETP were equally bullish.
Amidst a correction in technology stocks and sideways trading broader equity markets, S&L investors positioned in equities lacking conviction. As a result, the inflows into long and short US equity ETPs were balanced. Within European equity ETPs, S&L investors repositioned bullishly in Italy and Russia and bearishly in Germany, France and Sweden. European region focused equity ETPs saw flows as overall bullish.
The spectre of when, not if, the Fed is going to raise interest rates after a complete wind down of QE sustains the overwhelmingly bearish of S&L investors in US debt. Following the USD2.8 billion of outflows in March, inflows of USD22 million were modest, most of which were creations of short ETPs.
Within European fixed income, the major flows were confined to German and UK debt, where most of the redemptions seen were in short ETPs. The decelerating inflation rates in Europe’s best performing economies underscore bullish positioning by S&L investors.
S&L investors remained overly bullish on silver. Following the bullish flows seen in March, April saw a continuation of creations of long positions and redemptions of short positions in silver ETPs. Silver’s disproportionate fall last year relative to gold may have compelled S&L investors to increase their bullish bets on the metal since February.
Today S&L ETPs cover all major assets classes and geographies. In terms of asset allocation at the end of January, equity ETPs are the most popular with 71 per cent of total AUM (USD43.4 billion), followed by debt (17 per cent, USD10.3 billion) and commodities (seven per cent, USD4.1 billion). In equities, most of the AUM is focused on the US (US large cap, US small cap and US sector equities of USD18.6 billion) and European equities (USD6.1 billion). In Europe, broad European indices are the most popular (USD2.3 billion in AUM), followed by Germany (USD1.4 billion), Italy (USD689 million) and France (USD540 million). In debt, most of the AUM is in US government debt (USD7.1 billion), German government debt (USD1 billion) and European government debt (USD193 million). In commodities, natural gas (USD990 million of AUM), silver (USD914 million of AUM) and oil (USD966 million of AUM) are the most popular, followed by gold (USD827 million of AUM).
Viktor Nossek, head of research at Boost ETP, says: “April saw S&L investors turning bearish across major asset classes, including equities, fixed income and commodities. This coming on the back of equities having lost momentum in April, cut short by turmoil in EM since January and the correction in high beta segments of the equity market. EM and South Korea in particular overwhelmed a relative mixed stance held by S&L investors on US and European equities with relative large bearish flows.
“The inflows into commodities coming on the back of outflows from equities may suggest that S&L investors have traded out of equities in order to partially fund bearish position building in energy commodities, most notably oil and natural gas. Within commodities, silver stands out as where S&L investors have increased their long positions and reduced their short positions. With over 84 per cent of AUM in silver ETPs held as long positions, S&L investors remain overwhelmingly bullish on the metal, unlike gold where the split in AUM of gold ETPs between long and short positions is more balanced. Demand for S&L ETPs was also reflected in Boost ETP’s AUM having surpassed the USD100 million landmark by the end of the first quarter of 2014. In total, there are USD43.4 billion of assets held in S&L equity ETPs and USD4.1 billion of assets held in S&L commodity ETCs globally.
“The introduction of BOOST’s range of 3x short and 3x leverage ETPs was a first in the UK in December 2012 and a first in Italy in October 2013, and it is proving to be a useful tool for investors to hedge risk or express a view with less capital.”
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