Similarly, another Emerging Markets based fund, EWZ (iShares MSCI Brazil), lost more than $300 million as well, and Brazil is clearly a prominent weighting in aforementioned broad based emerging markets funds including EEM and VWO. In the fixed income space, iShares High Yield Corporate Bond (NYSEArca: HYG) and SPDR High Yield Bond (NYSEArca: JNK) also collectively saw about $400 million abandon ship which is consistent with the recent large print (and subsequent $800 million outflows) in JNK that we pointed out last week in this recap amid a sudden flight to U.S. Treasuries where it feels that institutions are eschewing “riskier” segments of the fixed income markets.
What were investors “buying” last week, if anything? IVV (iShares S&P 500) which is fund sponsor’s iShares’ version of the S&P 500 Index and a direct competitor to the popular SPY (SPDR S&P 500), reeled in more than $400 while related fund VOO (Vanguard S&P 500) also ranked high among ETFs with net creation activity, taking in more than $200 million. It seems feasible that amid the recent outflows in SPY, portfolio managers may be re-allocating to IVV and/or VOO for specific portfolio or tax purposes (or to capitalize on potentially lower expense ratios).
Elsewhere, funds that typically come to mind when there is a “risk off” appetite on the street were active last week, including BND (Vanguard Total Bond Market), LQD (iShares Investment Grade Corporate Bond), XLP (SPDR Consumer Staples), XLV (SPDR Healthcare), and SHY (iShares 1-3 Year Treasury Bond). Collectively, these ETFs accumulated more than $1 billion in assets throughout the week. Even precious metals caught a bid late last week, specifically with GLD (SPDR Gold) and IAU (iShares Gold) as well as SLV (iShares Silver) bouncing from a recent prolonged sell-off, and rumors that large global macro funds including John Paulson for example, were losing their shirts in such investments this year.
In volatility ETFs, the VIX has steadily marched upward and has now spent 12 consecutive trading days above its 50 day moving average, an area that provided technical resistance for nearly 7 months previously. Now, the VIX faces some overhead resistance at its 200 day moving average ($25.77) which is within shouting distance since the index closed at $25.10 last Friday. What has been noticeably absent during the recent equity market fallout is inflows in Volatility driven ETF/ETNs. In fact, the most prominent volatility based ETN, VXX, last week actually net lost assets via redemption activity, to the tune of about $200 million. Also, VIX options activity has been quiet for the most part, and we have not seen evidence of large directional positions building, which we did in fact see last year during the “calm before the storm” prior to last summer’s steep correction (large, out of the money, institutional call buying in VIX in the April through July timeframe of last year).”
Taking a step back after digesting the headlines, and the actual market activity witnessed throughout last week, it leaves us with a few simple take aways: The Euro currency has been falling like a knife amid continued unrest specifically regarding Greece, and taking equity markets, worldwide, with it (been there). Couple this with large trading losses disclosed by one of the nation’s premier banks (JPM) (been there too, only it was MF Global last time), and rumors about former hot-shot hedge fund managers whom can’t seem to get anything right these days (Paulson, Tudor Jones, or whomever is next in line) and you have a sloppy, unstable picture to say the least. Come to think about it, it looks a lot like the tail end of the summer of 2011, only we are still in the month of May.
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Full disclosure: Tom Lydon’s clients own GLD and SLV.