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Global AUM for Short & Leveraged ETPs Hits $56bn despite Souring Sentiment on Risk Assets

Thursday 13th February '14

  • The AUM of short & leveraged (S&L) ETPs reached a record of $56 billion at the end of January, up $0.9 billion (or 1.7%) from December, as investors continue to increase their usage of S&L ETPs globally
  • Inflows of $331 million into short US equity ETPs, the largest global inflow of such equity ETPs in January, combined with outflows of $150 million from long US equity ETPs suggests a bearish sentiment taking hold in US equities 
  • S&L investors bought $162 million of short European equity ETPs, while they also sold $177 million of long European equity ETPs ($339m net short), reversing the moderate upbeat sentiment in European equity markets in December 2013
  • S&L investors shifted bullish positioning to Japan, which has enjoyed the strongest inflows in S&L equity ETPs of $1.2 billion
  • Inflows into short US Treasury ETPs have slowed from $1.2 billion in December to $0.4 billion in January 2014
  • The strongest flow movements in commodities occurred in natural gas, with S&L investors buying $379 million short ETPs and selling $178 million long ETPs. S&L investors are moderately bearish in natural gas 
  • AUM and trading volumes in BOOST ETPs also continue to reach new records as AUM rose by 200% in 12 weeks and trading volumes rose 2,000% in 7 months. In January 2014, the most popular BOOST ETP was the Boost Natural Gas 3x Short Daily ETP (3NGS), where volumes were the highest and comprised 27% of total BOOST turnover
BOOST ETP, the award winning and specialist European provider of short and leverage exchange traded products (ETPs), is proud to announce the release of the BOOST Short & Leveraged ETFs/ETPs Global Flows Report for January 2014. The report reveals the AUM of S&L ETPs at the end of January is a record $56 billion, up $0.9 billion (or 1.7%) from the preceding month. 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 also tend to be traded faster and can be used more tactically, AUM and flows data for S&L ETPs can provide valuable timely 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.
After major equity benchmarks, the US, Europe and Japan attained new record levels towards the end of 2013. BOOST’s report reveals S&L investors are repositioning towards rising equity markets in Japan and South Korea. At the same time S&L investors have reduced their bullish positions in the US and European equity markets. Given the turmoil in equity markets lately, S&L investors have entered February with bullish convictions. Overall global AUM in long equity ETPs increased by $2.3bn to $23.4bn in January 2014. Global AUM of short equity ETPs increased by $1bn to $14.7bn. 
Sentiment is moderately bearish on European equities, with negative sentiment overhanging the banking sector as the ECB conducts its bank stress test. AUM of European equity ETPs now comprises only 41% of long positions, which is a noticeable reduction from 47% in December 2013. Italy stood out as seeing the largest bearish fund flows in equity ETPs, emphasised by the FTSE MIB’s large banking sector looking vulnerable amidst the ECB implementing a rigorous bank stress test this year.
AUM in S&L bond ETPs remains almost exclusively (98%) in short bond ETPs. With a second USD 10 billion taper announced by the Fed in January 2014, S&L investors are still positioned to gain from rising bond yields, albeit to a lesser extent compared to December 2013. Inflows into short US Treasury ETPs have slowed from $1.2 billion in December to $0.4 billion in January. 
The marked slowdown of inflows into short US Treasury ETPs suggests that the view on further increases in bond yields has moderated. This positioning by S&L investors is likely to be driven by the counter effect a further Fed tapering may have on US Treasury yields. With more monetary stimulus withdrawal to further undermine sentiment in EM risk assets, capital flows will intensify towards safe haven assets in DM, including US Treasuries.
At the end of January, S&L investors were evenly positioned in gold, with $0.4 billion held in long gold ETCs and $0.5 billion in short gold ETCs. Despite the risk-off sentiment taking hold over markets during the second half of January, the small flows in gold suggests the near equal split in AUM between long and short gold ETCs continues to leave investors in doubt about of the direction of gold. In contrast, a bullish conviction in silver is evident in the $0.7 billion of AUM in long silver ETCs, which is 3.5x the size of AUM in silver short ETCs.
Natural gas’s strong performance over the last two months, up 16% in January and 7% in December, has enticed S&L investors to take a contrarian view. Underpinned by high volatility, bearish positioning in natural gas is evident as S&L investors bought $379 million short ETCs and sold $178 million long ETCs.
The statistics within the Short and Leverage ETF/ETP Global Flows Report demonstrate the value S&L ETPs can bring to investors. Investors have clearly been responding to the availability of new products as evidenced by the increasing AUM in BOOST’s products. BOOST’s S&L ETPs are attractive to investors as they can provide a range of exposures from -1x to +3x through one simple trade. These levels of exposure allow investors to make effective use of their capital to gain from rising as well as falling markets or hedge their positions. 
According to the report, asset allocation in S&L ETPs at the end of January indicated that equity ETPs are the most popular with 69% of total AUM ($38 billion). This was followed by commodities (7%, $3.7 billion) and debt (2%, $10.7 billion). In equities, most of the AUM is focused on US large cap and small cap equities ($17.6 billion), followed by European equities ($4.4 billion). In Europe, Germany large cap equities are the most popular ($1.3 billion of AUM), followed by Europe ($758 million), Italy ($626 million) and France ($579 million). In debt, most of the AUM is in US government debt ($7.6 billion), followed by Germany ($1 billion) and Europe ($270 million). In commodities, silver is the most popular ($927 million in AUM), followed by oil ($822 million) and gold ($821 million). 
Viktor Nossek, Head of Research at BOOST ETP commented:
“Globally, investors continue to increase their usage of short & leveraged ETPs. Global S&L ETP assets have risen by $0.9bn (1.7%) in January to a record $56 billion. Demand for S&L ETPs was also reflected in BOOST ETP’s AUM having more than doubled in the second half of 2013. In total, there is $38 billion of assets held in S&L equity ETPs and $3.7 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 Short and Leverage ETF/ETP Global Flows Report and a Short & Leverage ETF / ETP Advisor Tool Kit.