Big sell-off in global equity markets didn’t stop S&L investors from adding their long positions. …
Record equity bullishness punished in December, but leveraged ETP investors double down as short ETP investors take profits
Short & Leverage (S&L) investors started December with record levels of bullishness on equities, which left them highly exposed to the worst December equity market since 1931. Despite the hit globally, leveraged ETP investors doubled down and bought the dip, funneling $2.3 billion into leveraged ETPs, while short ETP investors took profits, taking nearly $0.5 billion out of short equity ETPs. Accounting for leverage factors, this amounts to $5 billion worth of flows into equities, or roughly 7% of investors’ overall net position in equities .
Investors in S&L ETPs continue to unwind short US fixed income positions, reaching a record low in fixed income shorts since January 2009
The US 10-year government bonds yield decreased by around 0.30% in December. S&L ETP investors continued to reduce their positions in short US fixed income. $300mn were redeemed from short US government debt ETPs in December, representing 12% of overall AUM in S&L US government debt ETPs. We believe this reflects investors’ increasingly bearish views on the inflation rate and the FED’s pace of interest rate rises going forward.
S&L investors start 2019 with highest ever levels of bullishness on gold
Investors in S&L gold ETPs have been gradually increasing their bullishness since mid-2016, with 2018 providing a bump into record levels of bullishness on gold, potentially reflecting the possibility of a market downturn. The average investor leverage on gold ETPs went from 1.20x in January 2018, to the all-time-high level of 1.82x in December 2018
Global Asset Allocation
– The total global AUM of Short & Leveraged (S&L) ETPs at the end of December 2018 was $74.2 billion, down -13% YTD.
– 36% of AUM is held in short products with leverage factors ranging between -1x to -3x. 64% of AUM is held in long products with leverage factors ranging from +2 and above. The leverage factor with the most assets is +2x, with 41%of AUM.
– In terms of S&L asset allocation, equity ETPs are the most popular with 81% of AUM, followed by debts with 9% and commodities with 7%. The remainder is allocated between currency and alternative ETPs.
– The largest individual S&L ETPs are leveraged long Japan equities: $5.4 billion for Next Funds Nikkei 225 LeveragedIndex ETF.
Short & Leveraged Equities
– Currently there is $59.7 billion of AUM held in S&L equity ETPs, a decrease of -4.6% YTD. 69% of equity ETPs globallyare held in leveraged (long) ETPs, 31% in short ETPs.
– AUM in S&L US equity ETPs (including Size and Style but excluding Sectors as objective*) was $21.9 billion whilst US sector focused equity ETPs had $6.5 billion in AUM.
– Investors in S&L ETPs globally (“S&L investors”) maintained their bullishness on equities. Investors put $2.2 billion into leveraged equity ETPs in December and redeemed $460m of short equity ETPs.
– Current AUM of S&L equity ETPs tracking Europe (including Size and Style but excluding Sectors as objective*) stands at $4.1 billion with $1.3 billion tracking the European region and $2.8 billion tracking individual European countries. The AUM of ETPs tracking European sectors (region and country specific) remains small.
Short & Leveraged Debt: Global
– The AUM of S&L debt ETPs globally is currently $6.6 billion. With 96% of AUM held in short ETPs, S&L investors remain overwhelmingly bearishly positioned in debt.
– Breaking down the AUM of S&L debt ETPs, $5.6 billion is in government debt ETPs and $1.0 billion in corporate debt and preferred stock ETPs.
– 46% of the AUM of S&L government debt ETPs is in S&L ETPs tracking US government debt. S&L ETPs tracking European government debt account for $2.6 billion in AUM, or 47% of S&L government debt ETPs, most of which is German government bonds. The remaining 7% of AUM in S&L ETPs track Asian debt (predominantly South Korea government bonds) and the Middle Eastern debt. (Israel).
Short & Leveraged Commodities: Global
– S&L commodity ETPs are dominated by oil, natural gas, gold and silver representing 96% of total AUM. Oil is currently the largest commodity ETP with $2.2 billion in AUM, followed by Natural gas with $1.1 billion in AUM. Gold and Silver are the 3rd and 4th largest commodity ETPs, with $1 billion and $721 million in AUM, respectively.
– AUM of S&L commodity ETPs reached $5.5 billion in December 2018, a 23% decrease YTD.
Short & Leveraged Currencies: Global
– AUM of S&L currency ETPs reached $712 million in December 2018, a 34% decrease YTD.
– Most of currency inflow in December went to AUS-USD pair ($3 million)
All data provided in this report is sourced from calculations by WisdomTree, which are performed on underlying price, return, AUM, currency and market capitalisation data from Bloomberg®. Any fund description data is also obtained from Bloomberg. All data is as of 28th December 2018. All figures are denominated in USD.