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WisdomTree’s short and leveraged products show sharp reversal in US equity trading

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January trading figures from WisdomTree’s Boost range of short and leveraged products reveal a sharp reversal from the end of 2016 as investors piled into leveraged long US equities at the expense of short positions.

The trading reversal came as investors anticipate pro-growth policies from President Trump following his inauguration. The firm writes that in total, flows into leveraged long US equities came in at almost USD54 million in January, while USD4.6 million came out of short positions. This compares with withdrawals of USD40 million from long positions (and inflows of USD14.6 million into short positions) in the final two months of 2016.

Such was the demand for long US exposure in January that flows into the 3x Long S&P 500 ETF surpassed total net flows in (leveraged and short) US equity ETPs for the whole of 2016, although Nick Leung, Research Analyst at WisdomTree, notes there is still a lot of uncertainty surrounding Trump’s plans.

“S&L investors continued to position bullishly around Trump and US equities, with expectations hinging around Trump offering more details on proposed corporate tax cuts, infrastructure spending and regulation reform,” he says. “All of which would provide another shot in the arm for US equities.”

Trades in US equities in January were made against a backdrop of climbing valuations, with the S&P 500 index up 2 per cent over the month.

Elsewhere, investors also switched views on the outlook for both oil and natural gas. Both commodities were avoided en masse by investors in December as USD69 million was withdrawn from long positions in US Crude oil, alongside withdrawals in Brent and Natural Gas.

However, last month sentiment turned, with USD27 million invested in leveraged long oil ETPs, and a further USD26 million invested in Natural Gas. Short positions were also unwound across both commodities, and Leung says this was yet another sign of contrarian positioning in commodity markets.
“The flows contrasted with the trend in prices, with Natural Gas futures prices falling 16.2 per cent in January, and WTI Crude oil down 3.4 per cent,” he says.

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