Investors took a break from buying emerging market exchange traded funds to favor the safety of bond ETFs, according to the latest weekly flow data.
Absent from the top rankings in terms of ETF fund flows this week for the first time in 2012 are emerging markets based ETFs including Vanguard Emerging Markets (NYSEArca: VWO) and iShares MSCI Emerging Markets (NYSEArca: EEM). Both ETFs have been pulling in new assets without pause this year, but interest seems to have taken a breather in this past week. [Emerging Market ETFs Rally]
Instead, most of the money flows on the buy side of the equation were relegated to fixed income based products, as we saw SPDR Barclays Capital High Yield Bond (NYSEArca: JNK), iShares iBoxx Investment Grade Corporate Bond (NYSEArca: LQD) and iShares MBS Bond (NYSEArca: MBB) — a mortgage backed securities fund — attract nearly $1 billion in new assets collectively last week. Similarly, thinly traded Vanguard Intermediate-Term Corporate Bond (NasdaqGM: VCIT) also took in over $400 million in new assets via creation activity, and it seems clear to us that an institutional manager or manager is strategically shifting into various sleeves of the fixed income market. [ETF Spotlight: High-Yield Bonds]
On the outflows side, nearly $2 billion flowed out of SPDR S&P 500 (NYSEArca: SPY) and approximately $700 million left Financial Select Sector SPDR (NYSEArca: XLF), as it is possible that holders are taking profits into this last leg up in the equities markets. Other leaders on the outflows side included SPDR MidCap (NYSEArca: MDY),PowerShares QQQ (NasdaqGM: QQQ) and SPDR Dow Jones Industrial Average (NYSEArca: DIA), with approximately $1.3 billion leaving these funds collectively.
Buoyed by a strong showing last Thursday, equities staged another weekly rally, with the S&P 500 closing at 1361.23, and zeroing in on its April 2011 closing high of 1363. The Nasdaq-100 continued to inch higher as well, although the 2600 level presented some resistance throughout the week. As we have pointed out in previous recaps, the Nasdaq is very reliant on a handful of names, including Apple (NasdaqGS: AAPL) with a 15.05% weighting, and Microsoft (NasdaqGS: MSFT) with an 8.73% weighting.
Thus, the fortunes of the tech sector as reflected by the Nasdaq-100 is highly influenced by daily and weekly ebbs and flows in AAPL itself, and if one looks at the stock just last week from a “high/low” standpoint, the weekly range was about $40 which is about 8% of the equity’s value. Our market technician David Chojnacki points out that recently in the equity markets, “every time it looks like we may get a correcting pullback, the selling is bought.” He also notes that in the NDX, resistance is present both at 2600 and 2625, so we will be mindful of these technical levels in the coming, abbreviated 4 day trading week.
Last week we pointed out what seemed like a heightening amount of caution among institutional investors in terms of implied “risk” or volatility in the marketplace via the VIX, but last week after a rise earlier in the week that continued from the previous week, the VIX with a $21 handle did not persist, and finished the week sharply lower in the $17 range. Interestingly, VIX has unsuccessfully challenged its 50 day moving average on three separate occasions in the past 6 sessions, and has literally fallen back as it touches this level.
However, we noted last week that short interest in CBOE Volatility Index futures remains very high (at levels not seen since 2007), and this may provide fuel for a potential short squeeze at some point should there be an exogenous shock to the slow and steady recent equity rally. Absent from the marketplace in the early-going in 2012 is sizable directional ETF/Index options activity, although we have seen some scattered institutional hedging via puts in broad based instruments such as SPY and iShares Russell 2000 (NYSEArca: IWM). This said, as we move into March and the end of the first quarter of 2012, we would expect to see an acceleration in options activity and perhaps a lift in VIX futures and options activity as well which may present a better sense of where institutional players foresee the markets in the near term.
Nasdaq-100 Index
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