Thursday, July 08, 2021 9:41:30 AM
>>> A Lot of ETF Trades Got in Front of a Big Drop in Stock Market
Bloomberg
By Sam Potter
July 8, 2021
https://www.bloomberg.com/news/articles/2021-07-08/a-lot-of-etf-trades-got-in-front-of-a-big-drop-in-stock-market?srnd=premium
Bearish bets picked up this week, including via leveraged fund
An investor pivot to safer assets saw billions on the move
Thursday’s potential stock swoon will come as no surprise to players in the $6.6 trillion U.S. exchange-traded fund market, judging by their actions in the past few days.
Months of unbroken bullishness that saw record flows to cyclically-exposed funds is giving way to caution, with bearish bets picking up in the options market and cash diverting to safer assets.
With futures pointing to a red day on Wall Street, it all looks prescient.
Investors pulled $3.9 billion from the SPDR S&P 500 ETF Trust (ticker SPY) on Wednesday. That was the biggest exit in two months from the world’s largest exchange-traded fund, and came even as America’s benchmark gauge closed at yet another all-time high.
At the same time, $322 million -- the most since 2019 -- was pulled from the $9.4 billion iShares S&P SmallCap 600 Value ETF (IJS), compounding a rough few days for cheaper shares. Value products have now seen $560 million of withdrawals in July, after an unbroken series of monthly inflows since the first coronavirus vaccine breakthrough in November.
SPY, IJS face outflows with reflation trade in peril
“After a strong run for risk-taking in pro-cyclical ETFs for much of the year, investors have taken profits,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA. The concerns are that “global economic growth could prove weaker than originally expected,” he said.
As equity funds show a re-rotation to more growth-oriented bets, fixed-income ETFs hint at a similar reach for safety.
The largest Treasury product, the $16.6 billion iShares 20+ Year Treasury Bond ETF (TLT), has added almost $1.2 billion in the past six sessions, according to data compiled by Bloomberg. More than half of that was last week -- ahead of the almost 15 basis-point plunge in the 10-year yield since Tuesday.
The most interesting telltale signs of a sentiment shift were in the options market. Open interest in bullish calls on SPY dropped to the lowest since 2019 in mid-June and never recovered, signaling a lack of confidence the S&P 500 Index would keep pushing to fresh records -- at least in the near term.
More dramatically, there was a sudden burst of activity in options for the ProShares UltraPro Short S&P 500 ETF (SPXU). The $542 million product is a leveraged bet against America’s benchmark, aiming to deliver triple the inverse performance of the gauge. It’s been sliding all year as the S&P 500 went from strength to strength.
Options volume for the ETF are usually light, but on Wednesday more than 50,000 calls expiring July 16 changed hands. While it’s impossible to say how the calls are being deployed, theoretically they will rise in value if the S&P 500 falls and the price of SPXU bucks its year-long losing streak.
Meanwhile, investors are shorting the $67.4 billion iShares Russell 2000 ETF (IWM) by the most this year. The percentage of shares in the small-cap fund on loan jumped to more than 11% earlier this week, according to data from IHS Markit Ltd.
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Bloomberg
By Sam Potter
July 8, 2021
https://www.bloomberg.com/news/articles/2021-07-08/a-lot-of-etf-trades-got-in-front-of-a-big-drop-in-stock-market?srnd=premium
Bearish bets picked up this week, including via leveraged fund
An investor pivot to safer assets saw billions on the move
Thursday’s potential stock swoon will come as no surprise to players in the $6.6 trillion U.S. exchange-traded fund market, judging by their actions in the past few days.
Months of unbroken bullishness that saw record flows to cyclically-exposed funds is giving way to caution, with bearish bets picking up in the options market and cash diverting to safer assets.
With futures pointing to a red day on Wall Street, it all looks prescient.
Investors pulled $3.9 billion from the SPDR S&P 500 ETF Trust (ticker SPY) on Wednesday. That was the biggest exit in two months from the world’s largest exchange-traded fund, and came even as America’s benchmark gauge closed at yet another all-time high.
At the same time, $322 million -- the most since 2019 -- was pulled from the $9.4 billion iShares S&P SmallCap 600 Value ETF (IJS), compounding a rough few days for cheaper shares. Value products have now seen $560 million of withdrawals in July, after an unbroken series of monthly inflows since the first coronavirus vaccine breakthrough in November.
SPY, IJS face outflows with reflation trade in peril
“After a strong run for risk-taking in pro-cyclical ETFs for much of the year, investors have taken profits,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA. The concerns are that “global economic growth could prove weaker than originally expected,” he said.
As equity funds show a re-rotation to more growth-oriented bets, fixed-income ETFs hint at a similar reach for safety.
The largest Treasury product, the $16.6 billion iShares 20+ Year Treasury Bond ETF (TLT), has added almost $1.2 billion in the past six sessions, according to data compiled by Bloomberg. More than half of that was last week -- ahead of the almost 15 basis-point plunge in the 10-year yield since Tuesday.
The most interesting telltale signs of a sentiment shift were in the options market. Open interest in bullish calls on SPY dropped to the lowest since 2019 in mid-June and never recovered, signaling a lack of confidence the S&P 500 Index would keep pushing to fresh records -- at least in the near term.
More dramatically, there was a sudden burst of activity in options for the ProShares UltraPro Short S&P 500 ETF (SPXU). The $542 million product is a leveraged bet against America’s benchmark, aiming to deliver triple the inverse performance of the gauge. It’s been sliding all year as the S&P 500 went from strength to strength.
Options volume for the ETF are usually light, but on Wednesday more than 50,000 calls expiring July 16 changed hands. While it’s impossible to say how the calls are being deployed, theoretically they will rise in value if the S&P 500 falls and the price of SPXU bucks its year-long losing streak.
Meanwhile, investors are shorting the $67.4 billion iShares Russell 2000 ETF (IWM) by the most this year. The percentage of shares in the small-cap fund on loan jumped to more than 11% earlier this week, according to data from IHS Markit Ltd.
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