Last Friday, David also noted in a technical note that 10 Year Treasury rates are hitting new lows recently which may provide the impetus for some institutional investors to allocate more to equities simply from a pure yield standpoint. During the Monday through Thursday swoon turned convincing rally last Friday in the SPX, the VIX was unable to break new ground, which would be seen as a very encouraging sign by the bulls for the rest of this summer heading into the fall season. For, this time last year, we saw a VIX furiously rise from the teens to as high as $48 by last August, and today we see a VIX with a $16 handle with largely the same European headlines on the table from a year ago. VIX options trading have been noticeably quiet as well, as “real money” has simply been not involved in volatility hedging in the past few weeks to any large degree.
From a pure notional dollar standpoint, inflows last week in ETF products were not extremely notable, as the leader across the space only pulled in about $700 million. However, the name that we saw on top of the list is not typically this active, as OEF (iShares S&P 100) led all ETFs in terms of inflows. OEF traded tremendous volume earlier last week, with a 5 million share and a 7.5 million share day each versus average daily volume of about 990,000 shares. The ETF is weighted most heavily towards names including AAPL (7.05%), XOM (4.85%), and IBM (2.93%), so clearly it has a large cap, “blue chip” look and feel to it. Other leaders on the inflows side last week included IWM (iShares Russell 2000), DIA (SPDR DJ Diamonds), HYG, (iShares High Yield Corporate Bond), and LQD (iShares Investment Grade Corporate Bond), as these funds attracted about $1.5 billion in new assets collectively. Other notables that do not typically appear near the top in terms of weekly fund flows include BOND (PIMCO Total Return), which is quickly becoming known as the “largest actively managed ETF” in terms of asset size, and EMB (iShares JP Morgan USD Emerging Markets Bond). These two ETFs took in a collective $300 million in terms of assets last week.
Outflow leaders last week included SPY, which lost $2.2 billion to net redemptions and a number of sector ETFs including XLI (SPDR Industrials), XLE (SPDR Energy), XLY (SPDR Consumer Discretionary), and XLK (SPDR Technology). Together, these sector specific ETFs lost $1.3 billion collectively in AUM last week. GLD (SPDR Gold) also saw about $500 million leave the fund last week as the metal’s price continues to trade near its lows of 2012 (close on Friday in GLD was $154.14 and 2012 high was $174.00 in late February).
Market observers point to the weakening picture in the Euro currency, as FXE (CurrencyShares Euro) with the exception of last Friday, continues to plummet on a daily basis versus other world currencies including the U.S. Dollar and the Japanese Yen for instance. FXE has consistently been trading at multi-year lows in recent sessions, but if European equities (and other world equities, most significantly those in the U.S.) can muster gains despite the weakening currency itself, this will likely be received as a strong positive for the markets. The issue with this “decoupling” is that it has reared its head on several occasions in 2012 (upward momentum in equities despite a stable to weaker Euro) only to fade quickly and suddenly, and putting a quick end to any sustained rally in equities. This said, going into this week we will continue to take our daily cues here in the U.S. from the headlines (or lack of headlines) coming out of Europe.
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