Bolstered bearish wagers on U.S. government bonds, combined assets under management for global inverse and leveraged exchange traded funds climbed to $63 billion as of the end of June, according to data from Boost, WisdomTree (WETF), the fifth-largest U.S. ETF issuer.
“The bullish repositioning in equity markets outside the US resulted in inflows of $800 million in S&L equity ETPs globally. By contrast, sentiment in fixed income soured, helped not least by the uncertainty of Greece’s membership in the EMU and rising rates expectations in the US as the Fed signalled its readiness to raise the policy rate before the end of this year. S&L Investors increased their short positions in US and German government bonds as a result, helping this year’s cumulative inflows into short ETPs tracking debt globally to peak to $980 million. Where investors lacked conviction was crude oil, underpinned by a directionless but volatile moving oil price that compelled investors to cut back on both their bullish and bearish positions in June,” according to Boost’s global flows report for June.
Amid fears that the Federal Reserve is inching closer to raising interest rates later this year, investors pulled $1.6 billion from fixed income ETFs in June. However, bearish bond ETFs are another story. Last month, the ProShares UltraShort 20+ Year Treasury (TBT) and the Direxion Daily 20-Year Treasury Bear 3X (TMV) added $136.8 million and $39.4 million, respectively. Year-to-date, TBT and TMV have seen inflows of $122.6 million and $192.2 million. The ProShares Short 20+ Year Treasury (TBF) , which aims to deliver the daily inverse performance of the Barclays Capital 20+ Year U.S. Treasury Bond Index, has added over $22.2 million this year. [Fed Protection With a Leveraged Bond ETF]
“In terms of asset allocation at the end of June, equity ETPs are the most popular with 69% of total AUM ($43.2 billion), followed by debt (15%, $9.6 billion) and commodities (9%, $5.8 billion). In equities, most of the AUM is focused on US large cap and US small cap equities ($16 billion), US sector ETPs ($6.9 billion) and European equities ($6.7 billion). In Europe, broad European indices are the most popular ($2.8 billion in AUM), followed by Germany ($1.5 billion), Italy ($571 million) and France ($515 million). In debt, most of the AUM is in US government debt ($6.1 billion), German government debt ($1.4 billion), Italian ($308 million) and European-region focused ($300 million) government debt. In commodities, oil is the most popular ($3 billion in AUM), followed by natural gas ($1.1 billion), gold ($693 million) and silver ($683 million),” notes Boost.
Further breaking down inverse and leveraged ETF assets, 44% of assets are in bearish short and leveraged products and 56% is allocated to bullish double- or triple-leveraged funds, according to Boost data. Boost notes leveraged Europe ETFs have gained popularity this year. In the U.S., investors have poured $17 million into the ProShares Ultra FTSE Europe (UPV) and $55.5 million into the Direxion Daily FTSE Europe 3x Bull Shares (EURL). EURL, which debuted in January 2014, attempts to deliver three times the daily performance of the FTSE Developed Europe Index, the underlying benchmark for VGK. [Leveraged Europe ETF in the Spotlight]
Among U.S.-listed inverse and leveraged ETFs, the top asset gatherers at the end of the second quarter on a year-to-date basis included the Direxion Daily Gold Miners Bull 3X Shares (NUGT) , ProShares UltraShort S&P500 ETF (SDS) , Direxion Daily Energy Bull 3X Shares (ERX) and the ProShares UltraPro QQQ (TQQQ) , according to Boost data.
Chart Courtesy: Boost