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USD62bn in global AUM in S&L ETPs as investors rotate to equities from bonds

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Assets under management in short and leveraged (S&L) exchange-traded products (ETPs) totalled a record USD62bn at the end of March, up USD0.7bn or one per cent from the end of February and up 6.7 per cent YTD, according to Boost ETP.

The report demonstrates that investors globally continue to increase their usage of S&L ETPs.
 
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 valuable insight into the market sentiment of a relatively sophisticated set of investors.
 
Sentiment of S&L investors towards risk assets was markedly upbeat in March, as was evident from the redemptions of long positions in debt ETPs to coincide with creations of long positions in equity ETPs. Hence, March’s USD2.8bn of outflows from bond ETPs were countered by USD4bn of inflows into equities.
 
The risk-on trade was mainly confined to the US, which drove a USD3.3bn build-up of long positions in US equity ETPs. Within European equity markets, the sentiment of S&L investors was mixed. The flows in March suggest S&L investors were repositioning bearishly in European region focused equity ETPs and Italian equity ETPs, while allocating bullishly in French and German equity ETPs.  European equity ETPs recorded inflows of USD205m, equally split between long and short ETPs. Sentiment was mixed, underscored by bearish flows in European region focused ETPs and Italian ETPs and bullish flows in German and French ETPs.
 
However, amidst relative stable conditions in DM equities, the Russian equity market sold-off sharply as the crisis in Crimea unfolded. The positioning by S&L investors in Russian equities was opportunistic and contrarian, driving USD53m into long ETPs, the largest inflows in Europe.
 
March’s USD2.8bn of outflows from bond ETPs were countered by USD4bn of inflows into equities. Leading the inflows were US equity ETPs with USD3.6bn, of which USD3.3bn went long ETPs.
 
While the upbeat sentiment in risk assets left S&L investors unsure about the direction of gold as S&L ETP flows there were mixed, S&L investors remained overly bullish on silver. Helped by the bullish flows seen in March, over three quarters of the AUM of S&L silver ETPs is currently held in long positions. S&L investors repositioned bearishly in natural gas, resulting in USD15m of net inflows into short natural gas ETPs. Short ETPs now comprise 76 per cent of AUM in Silver S&L ETPs, up from 73 per cent in February.
 
The fading of US’s cold snap has reversed bullish sentiment in natural gas. Having fallen by seven per cent in March, the USD15m of net inflows into short ETPs resulted in short positions to comprise 80 per cent of AUM of S&L natural gas ETPs. Globally, debt ETPs recorded USD2.8bn of outflows, of which USD2.7bn was from US debt. The US outflows are a result of S&L investors reducing their long positions by USD2.9bn, following a near equal increase in long positions in February.
 
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 71 per cent of total AUM (USD43.8bn), followed by debt (17 per cent, USD10.6bn) and commodities (seven per cent, USD4.1bn). In equities, most of the AUM is focused on the US (US large cap, US small cap and US sector equities of USD18.3bn) and European equities (USD6bn). In Europe, broad European indices are the most popular (USD2.2bn in AUM), followed by Germany (USD1.3bn), Italy (USD712m) and France (USD609m). In debt, most of the AUM is in US government debt (USD7.5bn), German government debt (USD1.1bn) and European government debt (USD239m). In commodities, natural gas and silver are the most popular (USD1bn and USD940m in AUM respectively), followed by oil (USD882m) and gold (USD829m).
 
Viktor Nossek, head of research at Boost ETP, says: “March saw S&L investors reversing their positions, turning bullish on equities and bearish on bonds. This strong risk-on conviction was evident in the flows between US equity and bond ETPs, with S&L investors adding to their long positions in the former while unwinding their long positions in the latter. Within European equities, S&L investors’ allocations were relatively small and underpinned by mixed positioning within regional and country focused equity ETPs. The main event driving allocations in European equity ETPs was the Crimea crisis, which triggered USD64m of inflows into Russian equity ETPs, most of which was in long ETPs. Underscoring the development in commodities was the continuation of bullish flows in silver and the bearish flows in natural gas from February. Demand for S&L ETPs was also reflected in BOOST ETP’s AUM having risen to USD90m. In total, there are USD43.8bn of assets held in S&L equity ETPs and USD4.1bn 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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