Equity markets have been on a tear since the beginning of the year, and ETFs are reflecting this trend, with Equity ETF inflows outpacing bond ETFs by $18 billion in April alone.
While many have doubted that this bull market could persist, naysayers continue to be proven incorrect on a daily basis, as investors look for ways to capitalize on the trend in equities making new highs.
According to Matthew Bartolini, CFA and Head of SPDR Americas Research State Street Global Advisors, “Rally caps were donned for the fourth consecutive month, as April saw the fourth straight month of gains for global stocks. The longest winning streak since January 2018 pushed 72% of global equities to trade above their 200-day moving average – a reversal from how the year began, when only 23% of stocks were trading above their 200-day average.”
When equities move higher, volatility typically slackens, as investors become increasingly complacent and fearless with regard to equity selloffs and black swan events. Bartolini describes this as the “everybody gets a trophy” market, a term taken from tee-ball and a number of other sports, where all children are given prizes so no one feels left out or a loser.
Bartolini expains, “Beyond the rally’s returns, another characteristic of this “everybody gets a trophy” market is the change in the volatility regime. The CBOE VIX Index (VIX) has averaged 15.5 over the past four months, down 26% from Q4’s average of 21.9. So far in 2019, the S&P 500 has had just 15% of its trading days with a daily price move greater than one percent in either direction, down from 25% of its days in 2018.”
He adds, “When everyone reaches safely, it’s no surprise that risk is low. This complacency is apparent from the price investors are paying for next year’s earnings compared with current levels of volatility. That ratio now sits in the 76th percentile of the last 10 years, up 30% from the start of the year.”
In total, investors deposited over $25 billion into equity ETFs in April, the highest monthly flow total for equities in 2019.
In the leveraged ETF space, the following funds have had stellar performance in 2019, listed with YTD gains and expense ratios:
- VelocityShares 3x Long Crude Oil ETN (UWT), +95.73%, 1.50%
- United States 3x Oil Fund (OSOU), +94.29%, 1.43%
- UBS ETRACS ProShares Daily 3x Long Crude ETN (WTIU), +93.22%, 1.45%
- ProShares UltraPro 3x Crude Oil ETF (OILU), +92.72%, 1.03%
- Direxion Daily S&P Biotech Bull 3x Shares (LABU), +72.34%, 1.12%
- Direxion Daily Robotics, Artificial Intelligence & Automation Index Bull 3x Shares (UBOT), +61.19%, 1.49%
- Direxion Daily Technology Bull 3x Shares (TECL), +59.20%, 1.08%
- Direxion Daily Homebuilders & Supplies Bull 3x Shares (NAIL), +58.72%, 0.99%
- Direxion Daily Semiconductor Bull 3x Shares (SOXL), +58.08%, 0.99%
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