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$62bn in global AUM in Short & Leveraged ETPs as investors rotate back into equities and out of bonds

Tuesday 08th April '14

  • The AUM of short & leveraged (S&L) ETPs reached a record $62.1 billion at the end of March, a 1% rise from February and a 6.7% rise YTD. 
  • Inflows of $64 million into Russian equity ETPs were the largest in Europe. Underpinned by opportunistic positioning of S&L investors following the sharp sell-off in the Russian equity market amidst tensions in Crimea, $53 million went into long ETPs.
  • Silver ETPs recorded $26 million of inflows, the largest within commodities. Bullish sentiment in silver drove S&L investors to increase their long positions by $48 million and reduce their short positions by $22 million. 
  • AUM and trading volumes in Boost ETPs also continue to reach new records. In the first quarter of 2014 Boost has more than doubled its AUM to $90 million. Boost volumes during the same period exceeded $0.5 billion, a more than fivefold increase compared to the fourth quarter of 2013.

BOOST ETP, Europe’s award winning, specialist Short and Leverage (S&L) Exchange Traded Product (ETP) provider is proud to announce the release of the BOOST Short & Leveraged ETFs/ETPs Global Flows Report for March 2014. The report reveals the AUM of S&L ETPs at the end of March as a record $62 billion, up $0.7 billion (or 1%) from the end of February and up 6.7% YTD. 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. The BOOST Short & Leveraged ETFs/ETPs Global Flows Report highlights the key flows and trends in S&L ETPs across asset classes and geographies.

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 $2.8 billion of outflows from bond ETPs were countered by $4 billion of inflows into equities. 

The risk-on trade was mainly confined to the US, which drove a $3.3 billion 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 $205 million, 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 $53 million into long ETPs, the largest inflows in Europe.

March’s $2.8 billion of outflows from bond ETPs were countered by $4 billion of inflows into equities. Leading the inflows were US equity ETPs with $3.6 billion, of which $3.3 billion 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 $15 million of net inflows into short natural gas ETPs. Short ETPs now comprise 76% of AUM in Silver S&L ETPs, up from 73% in February.

The fading of US’s cold snap has reversed bullish sentiment in natural gas. Having fallen by 7% in March, the $15 million of net inflows into short ETPs resulted in short positions to comprise 80% of AUM of S&L natural gas ETPs. Globally, debt ETPs recorded $2.8 billion of outflows, of which $2.7 billion was from US debt. The US outflows are a result of S&L investors reducing their long positions by $2.9 billion, 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% of total AUM ($43.8 billion), followed by debt (17%, $10.6 billion) and commodities (7%, $4.1 billion). In equities, most of the AUM is focused on the US (US large cap, US small cap and US sector equities of $18.3 billion) and European equities ($6 billion). In Europe, broad European indices are the most popular ($2.2 billion in AUM), followed by Germany ($1.3 billion), Italy ($712 million) and France ($609 million). In debt, most of the AUM is in US government debt ($7.5 billion), German government debt ($1.1 billion) and European government debt ($239 million). In commodities, natural gas and silver are the most popular ($1 billion and $940 million in AUM respectively), followed by oil ($882 million) and gold ($829 million). 

Viktor Nossek, Head of Research at BOOST ETP commented:

“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 $64 million 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 $90 million. In total, there are $43.8 billion of assets held in S&L equity ETPs and $4.1 billion 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.”

Investors are increasingly using S&L ETPs for a variety of reasons. There is wider product availability, greater product knowledge from improved educational resources, and increased demand for hedging tools and leveraged instruments available. There is also a move towards independent, transparent and exchange traded instruments such as ETFs and ETPs. As a result of this increased usage and interest in S&L ETPs, BOOST recently launched a monthly Global Short & Leverage ETF / ETP Report and a Short & Leverage ETF / ETP Advisor Tool Kit.

Read the full report.