IEI (iShares Barclays 3-7 Year Treasury Bond), JNK (SPDR Barclays Capital High Yield Bond), HYG (iShares High Yield Corporate Bond) and TLT all were among the top 10 leaders in terms of ETF inflows last week, collectively attracting about $1.5 billion in new assets. Additionally, several sector ETFs, XRT (SPDR S&P Retail) and XLI (SPDR Industrials) were also among the most active, taking in about $250 million apiece last week.
In examining redemption activity last week, IWM (iShares Russell 2000) and IYR (iShares DJ U.S. REIT) led all ETFs in terms of outflows, with approximately $1 billion leaving the two funds collectively. UWM (ProShares Ultra Russell 2000) was also surprisingly active last week, trading more than 13 million shares last Wednesday on what was apparently a gigantic institutional fund liquidation of a long holding in the fund. Did this trade contribute to the dislocation and trading issues experienced by KCG (Knight) last week or was it coincidence that the fund, which is structured to deliver two times the daily leveraged return of the Russell 2000 Index, traded large blocks that day and saw large dollar redemption activity and ultimately more than 13 million shares versus average daily volume of 1.5 million share?
Other suspicious activity that emerged from last Wednesday were the 80,000 August 7.50 strike put contracts that were bought, and subsequently closed out, as KCG stock fell rapidly from a $10 handle, ultimately under $7 during Wednesday’s session, only to open with a $3 handle last Thursday. In options world, such a quick, and enormous profit, can be a career-making trade for whomever was fortunate enough to scoop up the KCG puts “prior” to the full effect of the news and the subsequent tanking of the stock. This oddly “fast” options orderflow will likely be examined by regulators, as the FXI (iShares FTSE China 25) call buyers ahead of a China central bank surprise rate cut were earlier this summer.
Other ETFs that lost net assets on the week include IVV (iShares S&P 500), IWN (iShares Russell 2000 Value), and XLF (SPDR Financials), but compared to the net dollar inflows given SPY alone took in more than $5 billion last week, the assets “out” are inconsequential for the most part.
Looking into the week ahead, despite last week’s midweek hiccups, it would be fair to say that we began August on the right foot instead of like last year’s August, which was a European driven debacle where “selling any rallies” was the norm, and the only way to play the equity market. Interestingly, throughout June and July, “buying the dips” has been a profitable strategy, with most market indices (with the exception of Small Caps via the Russell 2000) challenging multi-month breakout highs.
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