Exchange traded funds that follow safe haven sectors such as gold and U.S. Treasuries declined last week and saw money outflows as risk appetite in markets improved.
Federal Reserve Chairman Ben Bernanke in a speech Friday left open the possibility of additional stimulus at the Fed meeting in September. [Stocks Rise After Bernanke Speaks]
Investors withdrew assets from SPDR Gold Shares (NYSEArca: GLD) and PowerShares DB Double Long Gold ETN (NYSEArca: DGP) later in the week.
Over $3 billion flowed out of SPDR Gold Shares on Wednesday and Thursday. The gold ETF briefly eclipsed SPDR S&P 500 (NYSEArca: SPY) as the largest ETF in terms of assets.
The outflows are not particularly surprising as gold corrected notably after touching a recent high on Monday. GLD traded as high as $184.82 a share and eventually fell as low as $165.88 early on Thursday’s session. GLD did however recover somewhat over the past two sessions, closing well off its low at $177.47 on Friday. [How Risky are ‘Safe-Haven’ ETFs?]
We note that GLD is still trading well above its 50-day moving average ($159.45) from a technical standpoint, and it has not fallen below its 50-day MA since mid-June.
In other activity, we saw increased volumes in fixed income ETFs, specifically with inflows to mortgage-backed securities and outflows in U.S. Treasury bonds, including inflation-protected bonds.
The iShares Barclays MBS Bond Fund (NYSEArca: MBB) took in well over $200 million in new assets on increased trading volumes. [ETF Chart of the Day: Mortgage-Backed Securities]
Meanwhile, iShares Barclays TIPS Bond (NYSEArca: TIP) and iShares Barclays 20+ Year U.S. Treasury (NYSEArca: TLT) lost assets as investors redeemed from both funds.
It is unclear of what motivated such flows, as it could be a tactical fixed income shift across portfolios of one or several large institutional managers. Also in the fixed income space, we witnessed creation activity, or asset inflows in Vanguard Total Bond Market (NYSEArca: BND) last week.
Finally, volatility based ETFs and ETNs were active last week, and we not only point to flows in the ETF/ETNs themselves but also in the options markets. As the VIX has risen from its low point of 17.14 in late July to as high as 48 during the August equity market turmoil, trading in VIX and iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) options have been exceptionally active.
There had been heavy institutional interest in VIX and VXX calls when the VIX was still trading with a handle in the mid 20s and low 30s, and many of these call buyers have liquidated their open call positions into the subsequent rise in the VIX, which has now pulled back considerably off recent highs, and closed Friday at 35.59. [Investors Take Profits in VIX ETFs]
In fact, there have even been some cases of put buying in the VIX lately in the capital markets, especially in the latter half of last week. VelocityShares 2X VIX Short Term ETN (NYSEArca: TVIX) has seen very heavy volumes in the past seven sessions as well as notable outflows of assets (in the neighborhood of 60% of the overall assets in the fund) as it seems clear that institutional investors are either taking profits and/or taking off their volatility hedges at these levels.
For those that believe that market volatilities will temper going into the fall and winter months, we have seen increased trading interest in VelocityShares Daily Inverse VIX Short Term ETN (NYSEArca: XIV) as well as iPath Barclays Inverse S&P 500 VIX Short Term Futures ETN (NYSEArca: XXV).
SPDR Gold Shares
For more information on Street One ETF research and ETF trade execution/liquidity services, contact pweisbruch@streetonefinancial.com.
Full disclosure: Tom Lydon’s clients own GLD, SPY and TIP.
(Story updated to correct iShares Barclays TIPS ticker.)