With equity markets staggering this week, we have seen aggressive hedging, if not outright bearish speculation in several “Yield” oriented segments within equity ETFs.
In XLU (SPDR Utilities, Expense Ratio 0.18%) the activity has been the most noticeable and pronounced, as the December 38 puts have been bid all week with the sector taking a dip back to its 50 day moving average this morning.
In what we believe is related activity, downside puts several months out on the calendar have also been active this week in AMLP (Alerian MLP ETF, Expense Ratio 0.85%) and more recently in IYR (iShares U.S. Real Estate, Expense Ratio 0.48%).
The yields of all three of these ETFs, are well above those that one could earn investing in say an S&P 500 tracking ETF at (3.77%, 5.79%, and 3.77% respectively compared to SPY’s yield of 1.98%).
IYR has lost $322 million in the last several sessions which is substantial in terms of outflows (fund size is $3.7 billion in AUM) and assets have trickled out of XLU as well ($-23 million), but AMLP has actually seen net inflows recently (+$55 million).
Everyone is likely familiar with the fanfare that “Yield” oriented equity ETFs have generated over the past two years thanks to inflows by portfolio managers amid Fed actions and the current landscape, and these names are under significant pressure this week.
In XLU for example, one can look at a multi-month chart and see severe gaps down in the past since May, only to be met by quick reversals as investors have typically re-entered the market and bid the names back up after downdrafts.
Other ETFs that will likely see increased activity in this recent equity turmoil include VPU (Vanguard Utilities, Expense Ratio 0.14%), IDU (iShares U.S. Utilities Sector, Expense Ratio 0.48%), FXU (First Trust Utilities AlphaDEX, Expense Ratio 0.70%), VNQ (Vanguard REIT, Expense Ratio 0.10%), and AMJ (JP Morgan Alerian MLP ETN, Expense Ratio 0.85%) to name just a few.
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.
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