This year’s sharp correction in commodity and equity markets underpins fears of a China-led global slowdown. Triggering significant bearish repositioning by short and leverage (S&L) investors, global AUM of S&L ETPs rose to record highs of $71.2 billion…
– Sentiment in global equities soured as S&L investors repositioned with conviction: they redeemed $4.3 billion from long ETPs and poured $3.1 billion into short ETPs tracking major equity benchmarks
– Zero and sub-zero rates environment has added to investors’ downbeat growth outlook. Bank of Japan’s (BoJ) negative deposit rate introduction accelerated bearish positioning in S&L Japanese equity ETPs: $590 million into short ETPs and $720 million outflows from long ETPs
– Buoyed by the ECB’s March stimulus package, S&L investors increased their short exposure to German debt by $152 million
– The rebound in oil prices encouraged opportunistic repositioning by S&L investors with $400 million outflows from long ETPs and $155 million inflows into short ETPs tracking crude oil
BOOST ETP has announced the release of the Boost Short & Leverage ETFs/ETPs Global Flows Report for March 2016. The report reveals the AUM of S&L ETPs at the end of March reached new record highs at $71 billion, up 4.9% YTD. The report demonstrates that investors globally continue to increase their usage of S&L ETPs.
Nick Leung, Research Analyst at WisdomTree Europe, commented: “Global meltdown fears triggered significant bearish repositioning by S&L investors as heightened volatility pushed S&L AUM to new record highs of $71bn.
“Sentiment in global equities collapsed amidst an increasingly downbeat global growth outlook as S&L investors redeemed $4.3bn from long ETPs and poured $3.1bn into short ETPs tracking major equity benchmarks. US and South Korean equities suffered the heaviest punishment, with S&L investors responding to deepening concerns of a Chinese hard-landing and fresh fears of a European banking collapse with stark reversals in positioning. At the same time, the zero and sub-zero rates environment has also added to dampened global growth outlook; the BoJ’s negative deposit rate introduction accelerating risk-off positioning in S&L Japanese equity ETPs with $720 million outflows from long ETPs and $590 million into short ETPs. By contrast, S&L fixed income investors were buoyed by the ECB’s expanded March stimulus package, with falling Bund yields also compelling S&L investors to increase their short exposure to German debt. In commodities, the rebound in oil prices from January lows encouraged opportunistic repositioning by S&L investors with $400m outflows from long ETPs and $155m inflows into short ETPs tracking crude oil.”
Investors in S&L ETPs can express bullish as well as bearish sentiment by investing in either a leverage 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 valuable insight into the market sentiment of a relatively sophisticated set of investors. The BOOST Short & Leverage ETFs/ETPs Global Flows Report highlights the key flows and trends in S&L ETPs across asset classes and geographies.
Today S&L ETPs cover all major assets classes and geographies. In terms of asset allocation at the end of March, equity ETPs are the most popular with 72% of total AUM ($52.6 billion), followed by debt (12%, $7.0 billion) and commodities (9%, $6.8 billion). In equities, most of the AUM is focused on US large cap and US small cap equities ($19.0 billion), Asia-Pacific equities ($15.9 billion) and European equities ($5.7 billion). In Europe, broad European indices are the most popular ($2.5 billion in AUM), followed by Germany ($1.4 billion), Italy ($552 million) and France ($566 million). In debt, most of the AUM is in US government debt ($3.6 billion), German government debt ($1.5 billion), and Italian ($254 million) and European-region focused ($216 million) government debt. In commodities, oil is the most popular ($4.4 billion in AUM), followed by gold ($705 million), natural gas ($637 million) and silver ($623 million).
Investors are increasingly using S&L ETPs for a variety of reasons. There is wider product availability, greater product knowledge from improved educational resources, and increased demand for hedging tools and leveraged instruments available. There is also a move towards independent, transparent and exchange traded instruments such as ETFs and ETPs.