This could simply be a by-product of wavering institutional sentiment as we head into the final days of June. Similarly, even though we saw “high beta” equity names leading the way last week in net asset inflow activity, there do seem to be some mixed signals out there as SPLV (PowerShares S&P 500 Low Volatility) reeled in an impressive $400 million, and GLD (SPDR Gold), OEF (iShares S&P 100), and XLV (SPDR Healthcare) were all among fund flows leaders last week.
One could make an argument just by briefly browsing through this list of ETFs that flows appeared to be “defensive”, in selecting conservative, lower “vol” S&P type names and/or in the case of GLD, the desire for hard assets seems to be present as well. On the outflows side, SPY and IVV (iShares S&P 500), which track the same index, lost a collective $1.5 billion last week, and IWM (iShares Russell 2000) spilled at least $400 million in assets as well.
A lighter trader, IWR (iShares Russell Midcap), saw more than $500 million leave the fund as well. This could simply be institutional mid-year rebalancing, and like the “inflows” side of the equation, the real notional dollar amounts of funds entering and leaving ETFs last week via creations/redemptions were relatively low compared to the typical weekly turnover. Finally, our eyes will be on the MLP space as well, as late in the week JP Morgan, the bank behind AMJ (Alerian MLP ETN), announced that they have halted creations in the product, which led to the fund trading to a slight, but meaningful premium to close out the week.
Likely not coincidentally, the fund saw more than $500 million enter the fund last week alone, and one can look back no further than the infamous “TVIX” fiasco that occurred earlier this year as winter was winding down to see how exogenous action from the bank issuer of an ETN can affect the product’s pricing in the secondary market, and how the dynamics of trading in a particular product can be forever transposed.
This week, we enter another “wait and see….and listen” scenario regarding any “headline” shocks that may come out of Europe, but this environment is not at all new for investors whom remember the summer of 2011 well. From a technical standpoint, the SPX does have support at the 1325 level, which has been challenged twice in recent sessions, and short interest via SPX options and futures remains very high down in the 1310 to the 1300 levels. This said, we would expect short covering aggressors to enter the market on any pullback below 1325, especially on any gaps down to the 1310-1300 level in cleaning up this remaining short interest. Perhaps those whom have been waiting on the sidelines all year, or those that wisely got out early in May, will look at valuations around those levels with appeal and also look to establish equity positions heading into the second half of this year.
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