The iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD) took in over $500 million in new assets this week and iShares iBoxx High Yield Corporate bond (NYSEArca: HYG) accumulated over $300 million. So it seems that investors not only want exposure to equities but are also comfortable with both investment grade and high yield corporate debt issues at the moment.
This is a big paradigm shift since stops were triggered a little over a week ago when the SPX actually traded at new recent lows (1074), albeit briefly. Not surprisingly, SPDR S&P 500 (NYSEArca: SPY) and iShares MSCI Emerging Markets (NYSEArca: EEM) were among the top gainers in terms of fund inflows/creations last week as well, as portfolio managers tend to scramble for broad benchmark index products in such a rally so that they can participate in a trending move.
The emerging markets still have some work to do in terms of performance, as EEM is down 16.89% year to date versus SPY down 2.52%, so it is very possible that bullish managers may be pilling into EEM and related ETFs in hopes that the performance gap will narrow significantly going into year’s end.
On that note, iShares FTSE China 25 (NYSEArca: FXI) also took in a notable amount of new assets, nearly $500 million, and China is obviously a huge part of the emerging markets picture.
Last week we spoke about bullish activity in the financials sector via related ETFs such as Financial Select Sector SPDR (NYSEArca: XLF) and Direxion Daily Financial Bull 3X Shares (NYSEArca: FAS), as well as related call buying. [Financial ETFs]
The sector has rallied considerably off its recent lows although it did pare some gains after JP Morgan’s (NYSE: JPM) earnings report, and thus FAS was rather active this week. FAS actually saw notable outflows, to the tune of about $320 million which is not terribly surprising since the ETF is generally used as a short term trading and hedging tool, and investors likely used it to gain exposure on the way up in the sector, and then quickly bailed once the uptrend started to flounder.
This kind of activity also reinforces to us that despite criticism from industry insiders and outsiders, some market participants are actually utilizing leveraged funds properly and not simply using them as “buy and hold” vehicles. Similarly, other leveraged funds including ProShares Ultra S&P 500 (NYSEArca: SSO) and Direxion Small Cap Bull 3x Shares (NYSEArca: TNA) on the bullish side also saw outflows, which is likely just a function of profit taking into the recent rally, as investors who were long these funds, could not resist taking some money off of the table.
In other evidence of the risk-on trade, last week there was selling pressure in iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT). [Treasury ETF Losing Streak]
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