The top asset inflows for notable U.S.-listed ETFs in the past week based on IndexUniverse data were: #1 SPY (SPDR S&P 500) $1 billion #2 EEM (iShares MSCI Emerging Markets) >$750 million #3 LQD (iShares Investment Grade Corporate Bond) >$550 million #4 EWZ (iShares MSCI Brazil) >$500 million #5 FXI (iShares FTSE China 25) >$440 million.
Note the clear “theme” of inflows to Emerging Markets/BRIC ETFs last week, but these buyers were rudely surprised by Friday’s steep sell-off.
Year to date, two of the largest component weightings in the EM Indexes (China and Brazil, at 17.76% and 10.80% weightings respectively), are severe laggards when compared to the predominant U.S. Equity benchmark, the SPX which is up 14.17% YTD. FXI is up 6.54% and EWZ down 5.28% in comparison YTD. Also, the broader EEM (iShares MSCI EM Index) is up 9.30% YTD, showing that other EM regions such as South Korea and Taiwan are largely netting out Brazil’s very poor 2012 showing thus far.
It does seem feasible that investors that are under-allocated to equities going into the final months of 2012 are chasing higher beta in the form of these EM ETFs. Options flows in the EM space have agreed recently with these ETF creation flows, as we have witnessed mostly call buying in EWZ and FXI, as well as mixed flows (calls/puts), in the broader EEM.
The top asset outflows among notable ETFs included: #1 MDY (SPDR S&P Midcap 400) -$380 million #2 GLD (SPDR Gold) -$370 million #3 GOVT (iShares Barclays U.S. Treasury Bond) -$266 million, #4 QQQ (PowerShares QQQ) -$249 million #5 XLK (SPDR Technology) -$183 million.
We cannot talk about outflows in Technology related ETFs above, QQQ and XLK without mentioning AAPL stock, as we did in last week’s recap, and now we have to also add a quick discussion about GOOG stock. As we have mentioned frequently throughout the course of 2012, AAPL’s hefty weight in Tech related Indices/ETFs squarely put the name in focus as it rises and falls, as it truly has the ability to influence shorter, and longer term moves of at least the entire tech sector given this weighting.
AAPL is the top weighting in the NDX/QQQ at 19.74%, and has an even heavier weighting in XLK at 20.48%. AAPL, had its second straight very difficult week, closing on Friday below $610, which is territory not seen in the stock since early August. Trading volume in the stock was very heavy on Friday as well, and one has to think aloud, “are shareholders beginning to doubt the leadership of Tim Cook?” As this would not be the first time in history where a company luminary and leader such as Steve Jobs is no longer in the picture (RIP Steve), and the new regime fails to capture the same momentum going forward and staggers for some time in terms of company direction, innovation, and ultimately execution and profitability. AAPL’s operating system competitor, GOOG, had its own woes last week, as the stock initially rallied through $750 on Thursday BEFORE its anticipated quarter end earnings release was “leaked” early, and DURING the trading session.
This sent GOOG stock into a free-fall before eventually being halted. GOOG regained some momentum early on Friday, but it too closed at new recent lows, with a $681 handle (GOOG hasn’t traded this low since the early part of September). GOOG is the #3 weighting in QQQ, at 5.65%, and #5 weighting in XLK at 6.54%. So with both AAPL and GOOG staggering, not to mention prominent component of XLK, IBM also falling precipitously last week after an earnings miss (and former belwethers like INTC trading at new 52 week lows), it feels and looks like one of the leading Relative Strength Sectors, Technology, has quickly and suddenly cratered, and in some sense took a piece of the overall market down with it just based on simple math and component percentage weightings. This bears worth repeating this week, as we echoed this in last week’s recap but “we believe that profit taking (for those who have longer term or 2012 profits in Tech names like IBM, AAPL and GOOG) have begun as it seems that stop loss orders are taking holders as the sector heads lower.
This said, more evenly balanced Technology ETFs are likely worth a look given individual tax considerations going into year’s end such as QQEW (First Trust Nasdaq 100 Equal Weight) and QQQE (Direxion Nasdaq 100 Equal Weight) as potential “tax swaps.”
Elsewhere, the VIX (CBOE Volatility Index) which has puttered around in the $13-$15 level for the greater part of two months, suddenly shocked those whom are “short” volatility in their portfolios by rising 13.5% just on Friday alone, and closing with a $17 handle. Long VIX, and leveraged long VIX related ETPs including VXX, UVXY, VIXY, TVIX, and others should be watched very closely early next week in terms of related flows/price action to see if this sudden volatility shock is just a fleeting event or perhaps something to worry about going into the final months of the year (and perhaps even more importantly in the next few weeks heading into the U.S. Presidential Election).
One quick note in regards to the huge outflow in GOVT as noted above. The fund typically only trades approximately 278,000 shares per day but on Thursday alone, a large institutional holder liquidated what appears to be about 10 million shares in one session alone. The size of the trade, regardless of any motivation, was certainly an eye opener. Finally, weakness on Friday was not limited to equities, as Precious Metals including Gold (IAU, GLD), Silver (SLV), Platinum (PPLT), and Energy commodities such as Oil (DBO) were also largely punished, with some closing on or near notable MA levels.
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.