Inverse sterling ETFs in demand following UK election result

Jun 14th, 2017 | By | Category: Alternatives / Multi-Asset

Investors reacted to the UK election on 9 June 2017 by increasing their exposure to short GBP ETPs, according to ETF Securities’ weekly ETF/ETP flows analysis for the week beginning 6 June. Other ETPs with notable flows for the week included those tracking gold, oil and industrial metals, as well as the firm’s cyber security ETF.

Edith Southammakosane, multi-asset strategist at ETF Securities

Edith Southammakosane, multi-asset strategist at ETF Securities.

Regarding the heightened flows into short GBP ETPs, such as the ETFS Short GBP Long USD (LON: USD2), Edith Southammakosane, multi-asset strategist at ETF Securities, said: “The supposedly easy win turned into a shocking disappointment on Friday as UK prime minister Theresa May lost her majority in parliament. The $4.7 million inflows into short GBP ETPs indicate that investors are expecting further depreciation in the currency mainly against the US dollar in the near term. However, we believe that a softer Brexit should be positive for the sterling in the longer run.”

Gold ETPs saw outflows on profit taking as the spot gold price rose above $1.290/oz for the first time since November 2016. The dollar came under pressure ahead of the testimony of former FBI chief Comey and following tensions in the Middle-East despite UK political instability. ETFS Physical Gold (LON: PHAU), which has $5.9 billion in assets sunder management, has gained 8.7% in the year to 13 June 2017.

Southammakosane commented: “Pressure on the gold price surprisingly faded away on Thursday despite the lack of details from president Draghi about how and when tapering will occur and despite elevated instability in UK politics following the results of the general election. Both would normally be price supportive for gold and therefore a source of gold buying. Gold ETPs instead recorded further outflows on Friday with the total outflows for the week reaching $60m.”

Positive flows continued to flow into cyber security ETFs, with $37m added to the ETFS ISE Cyber Security GO UCITS ETF (LON: ISPY) during the week, the largest weekly inflows since inception. The fund has recorded double-digit inflows (in $m) every week since the ransomware cyber-attack on 12 May that hit nearly 100 countries.

Oil ETPs saw inflows during the week even as the oil price continued to come under pressure. Long oil ETPs added nearly $42m with the majority going to long WTI crude. Southammakosane said: “The blockade of Qatar from four Arab nations including Saudi Arabia failed to support prices as the country is a very small producer of oil. US oil inventories, on the other hand, rose by 3.3m barrels last week against market expectations, the first increase in stockpiles since the end of March 2017.”

Meanwhile, industrial metals ETPs, such as the ETFS Industrial metals (LON: AIGI) saw further outflows following Moody’s downgrade of China’s sovereign debt three weeks ago, in addition to a slowdown in China’s domestic consumption of metals in the year to March 2017 for the first time since July 2016. However, Southammakosane said: “The investment case for industrial metals remains solid as the Chinese economy stabilises and as the domestic balance remains in deficit.”

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