Global short and leveraged ETP assets surpass $60 billion

Mar 19th, 2014 | By | Category: Alternatives / Multi-Asset

Assets under management (AUM) in short and leveraged exchange-traded products have surpassed $60 billion, according to a report from Boost ETP, a London-based issuer.

Global short and leveraged ETP assets surpass $60 billion

Viktor Nossek, Head of Research at Boost ETP.

The report shows that global AUM reached a record $61.3 billion at the end of February, up $2.2 billion from the end of January 2014 and 6% year to date.

In terms of asset allocation, equity-based short and leveraged ETPs are the most popular, with 65% of total short and leveraged AUM ($39.8 billion), followed by debt (22%, $13.6 billion) and commodities (7%, $4.2 billion).

Short and leveraged ETPs are gaining popularity with investors looking to implement currency, interest rate and exposure hedges, as well as among traders looking to enact short-term tactical positions.

The direction of flows into these products offers an indication of investor sentiment. According to Boost, sentiment towards risk assets has taken a beating after capital flight from emerging markets triggered a sell-off in equity markets in the US, Europe and Japan during the latter part of January 2014. February saw bearish equity flows against a backdrop of record bullish flows into long US debt ETPs of $2.9 billion

Within equities, Japan stood out as the only geography where short and leveraged investors significantly increased their bullish positions, with $446 million of flows into long Japanese equity ETPs. The bearish stance was most pronounced in US equities, with $3.8 billion of flows out of leveraged long ETPs only slightly offset by $0.5 billion of flows into short ETPs. Bullish positions were also cut across equity ETPs tracking European countries. Short and leveraged ETPs tracking France, Italy and Sweden saw flows out of long ETPs and into short positions.

Long debt positions started off February at only 2% of short and leveraged debt ETPs (shorts making up 98%); however, by the end of February, long debt ETP positions comprised 23% of global short and leveraged debt AUM.

Despite the risk-off sentiment taking hold over markets during the second half of January and driving a relative strong recovery in precious metals, the fairly balanced split in AUM between short and leveraged ETPs indicates investors are uncertain about the direction of gold. In contrast, with nearly $0.9 billion (84%) of AUM in short and leveraged silver ETPs comprising long positions, investors’ overwhelmingly bullish positioning remains unaltered.

The strong performance of natural gas this year, up by over 20%, continues to drive short and leveraged investors to short natural gas ETPs. Underpinned by high volatility, last month’s bearish positioning in natural gas was augmented in February with $335 million of flows into short natural gas ETPs.

Viktor Nossek, Head of Research at Boost ETP and the author of the report, commented: “February saw investors in short and leveraged ETPs reposition bullishly in bonds and bearishly in equities. Strong bearish conviction across US and European-country focused equities played out in the unwinding of long positions and building up of short positions. Bonds in developed markets have regained appeal, helped not least by the turmoil in emerging markets that is driving the repatriation of foreign capital back into US Treasuries. This in turn is reviving bullish leveraged positioning in government debt.”

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