In terms of ETF fund flows, small caps were clearly not in favor as IWM led all ETFs in terms of outflows, losing approximately $1 billion. Likewise, Direxion Daily Small Cap Bear 3x (NYSEArca: TZA) was very active throughout the week and reeled in more than $200 million and also saw active call buying. TZA delivers 3 times the daily inverse return of the Russell 2000 Index (and IWM is linked to the benchmark on the long side) and is generally used by bearish speculators and aggressive downside hedgers. Other equity ETFs that saw substantial outflows last week include IVV (iShares S&P 500) and QQQ, losing $800 million collectively. Leveraged “long” ETFs also ranked among the leaders in net outflows, which is a sign that institutional players and/or traders that may have loaded up on these products in the past week or so were “stopped” out as the equity markets seemed to hit a brick wall and reverse sharply to end the week. Specifically, UWM (ProShares Ultra Russell 2000) and SSO (ProShares Ultra S&P 500) lost about $500 million collectively via redemption activity, as did several non leveraged, sector equity ETFs, XLF (SPDR Financials), XLI (SPDR Industrials), and XLB (SPDR Basic Materials) which saw approximately $300 million collectively flow out of the funds.
Funds that saw creation activity included a number of fixed income related issues, perhaps a sign that institutional monies were parking assets in asset classes such as U.S. Treasuries in order to avoid further damage from the equity markets. Specifically, fund inflow leaders were SHY (iShares 1-3 U.S. Treasury Bond), IEI (iShares 3-7 Year Treasury), UST (ProShares Ultra 7-10 Year Treasury), JNK (SPDR High Yield Bond), CSJ (iShares 1-3 Year Credit Bond), and IEF (iShares 7-10 Year Treasury Bond). Collectively, the funds accumulated more than $2.2 billion in assets last week via creations, and this is the first time in recent recollection (in at least 7-8 months) that we saw weekly ETF inflows have such a heavy slant towards U.S. Treasuries, and in this case mostly short to medium duration bonds. Needless to say, after a steep corrective sell-off in mid March, Treasuries have rallied back sharply (and yields have fallen) and are challenging multi-month highs once again.
From a “macro” standpoint, the Euro finished the week significantly lower against the U.S. dollar and talk across trading desks mostly centered on the words “Greece”, “Austerity”, as well as “China” and “Slowdown” which have us recalling the big picture scenario from the summer of 2011 that rudely dragged equity indices lower. In fact, it all sounds like an unresolved broken record in reality. With treasuries catching a bid amid these renewed tensions and with short term technical levels in the major equity indices all of a sudden in serious jeopardy, the first week of May has many repeating the ages old mantra “Sell In May and go away.”
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