As market volatility spikes, aggressive exchange traded fund investors are increasingly turning to leveraged products to catch the falling knife and bet on a swift rebound.
Inflows into niche ETFs that track leveraged strategies are even attracting more cash this month than many traditional passive index-based plays, Bloomberg reports.
ProShares and Direxion leveraged ETFs have each brought in inflows of over $2.8 billion so far in March, according to Bloomberg Intelligence data. On the other hand, funds from cheap index-based players like Vanguard only attracted $1 billion while passive index ETFs from BlackRock’s iShares saw $12 billion in redemptions.
For example, among the most popular ETF plays over the past month, the
For example, the ProShares UltraPro QQQ (NasdaqGM: TQQQ) was one of the most popular ETF plays over the past month, attracting $1.6 billion in net inflows, according to ETFdb data.
Financial Instruments
The ProShares UltraPro QQQ tries to reflect the daily investment results that correspond to three times daily performance of the NASDAQ-100 Index. The fund invests in financial instruments that ProShare Advisors believes, in combination, should produce daily returns consistent with the fund’s investment objective. The index includes 100 of the largest domestic and international non-financial companies listed on The Nasdaq Stock Market based on market capitalization.
Additionally, the Direxion Daily S&P 500 Bull 3X Shares ETF (NYSEArca: SPXL) saw $979 million in net inflows over the past month.
The Direxion Daily S&P 500 Bull 3X Shares ETF tries to reflect the daily investment results equating to 300% of the performance of the S&P 500 Index. The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements, and securities of the index, ETFs) that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.
While these strategies can generate high returns during a strong rebound, they may also amplify losses if the markets swiftly turn. Nevertheless, with the surge in global market volatility, more-experienced traders are turning to this ETF tool to express their views of the markets.
“Some investors seek to benefit from the recent market volatility on both the up and downside,” Todd Rosenbluth, director of ETF research at CFRA Research, told Bloomberg. “ProShares and Direxion have broad suites of products to support those trades.”
Long leverage, or bullish, ETF have brought in $5.1 billion so far this month, the most in inflows since at least 2013, according to Bloomberg Intelligence.
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