Inverse, Leveraged ETFs See Surge in Assets

Inflows to exchange traded funds were a record $247.3 billion. That marks the second consecutive year inflows topped $200 billion.

Smart-beta, or non-cap weighted ETFs, continued to gain stature…and assets. Smart beta ETFs “contributed a record $65.1bn of inflows in 2013 led by dividend-weighted funds, and nearly doubled the $34.2bn from last year,” said BlackRock. [ETFs See Record Inflows in 2013]

Smart beta is just one example of where investors poured money into ETFs in 2013. In an environment that favored risk-taking, elevated animal spirits and bearish postures on various commodities, inverse and leveraged ETFs finished 2013 with $54.8 billion in combined assets under management, up 22% from 2012, according to Boost ETP. Boost is a boutique provider of Europe-listed inverse and leveraged ETFs and the first European ETF provider to focus exclusively on inverse and leveraged products.

“51% of AUM is held in short products with leverage factors ranging between -1x to -3x. However the leverage factor with the most assets is +2x, with 35% of AUM. 46% of AUM is held in long products with leverage factors ranging between +1.5x to +3x,” according to Boost.

Boost notes that the “largest individual S&L ETPs are short U.S. treasuries and leveraged U.S. equities.” The largest U.S.-based providers of inverse and leveraged ETFs are ProShares and Direxion. Maryland-based ProShares had almost $27 billion in assets under management as of Jan. 17. The firm has recently been increasing its lineup of more traditional, non-leveraged ETFs. [ProShares Introduces Short Duration EM Bond ETF]

“In contrast to equities, AUM in S&L bond ETPs at the start of 2014 is almost exclusively (98%) in short bond ETPs. Persistent worries of when, not if, the US Fed would begin unwinding monetary stimulus caused long dated US Treasury yields to rise by over 100 bps from its lows in June, undermining sentiment in government bonds,” said Boost in a statement.

In Europe, investors in leveraged ETFs are net bullish on Italy, France, Norway, Spain and Sweden and net bearish on Germany, Switzerland and the U.K., according to Boost data.

“Investors ended the month with a net short position of $14.5 billion in US debt – the most bearish since July 2011. Investors are also bearish on UK, German, Italian, European and Japanese government debt,” said Boost.