As the equities market swings, traders have incorporated leveraged and inverse exchange traded funds to jump on short-term opportunities and hedge around events, like the Brexit vote.
“If ever there was a market environment for uncertainty hedging, it is now,” Andy O’Rourke, Managing Director and Chief Marketing Officer at Direxion, told ETF Trends on a call. “Things can change quickly.”
For instance, O’Rourke pointed to heavy product interest for leveraged and inverse ETFs that track gold miners and junior gold miners.
In the wake of the Brexit referendum results that triggered a global risk-off event, gold along with the miners segment rallied, with the Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT) and the Direxion Daily Junior Gold Miners Index Bull 3X Shares (NYSEArca: JNUG) both surging on the safe-haven play. Both leveraged-long gold miner ETFs are among the best performing funds of the year, with NUGT up 546.5% and JNUG up 817.1% year-to-date.
Additionally, ETF traders have also exhibited an equal interest in shorting gold miners through options like the Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST) and Direxion Daily Junior Gold Miners Index Bear 3X Shares (NYSEArca: JDST).
O’Rourke also pointed to elevated activity in biotechnology leveraged/inverse ETFs, the Direxion Daily S&P Biotech Bull Shares (NYSEArca: LABU) and the Direxion Daily S&P Biotech Bear Shares (NYSEArca: LABD).
Despite a relatively lackluster year for the biotech segment, traders may have latched on to the growth sector in hopes of an eventual rebound and played the volatility along the way.[related_stories]
The Treasuries theme has also been a long, steady constant, O’Rourke said. The Direxion Daily 20-Year Treasury Bear 3X (NYSEArca: TMV) has accumulated $323.1 million in net assets under management while the Direxion Daily 20+ Year Treasury Bull 3x Shares ETF (NYSEArca: TMF) has $90 million in AUM, which suggests that traders have been bulking up on their short Treasury positions to hedge against an eventual turn after U.S. Treasury yields dipped to new lows.
O’Rourke also pointed out that the Direxion Daily Japan Bull 3x Shares (NYSEArca: JPNL) was also experiencing some unusual activity recently, which may have reflected the surge on stimulus bets after the ruling bloc’s landslide win in the recent Japanese parliamentary elections.