An ETF Rarity: Leveraged Bear ETFs Hauling In More Cash Than Bull Rivals
It is often said that investors are born with a bullish bias and that bias must be unlearned through experience. No medical doctors or psychologists are behind the writing of this piece, but if they were, they would probably say there is a part of the human brain that enjoys rooting for good outcomes and against outcomes perceived as poor.
A simple explanation to be sure, but it sheds some light on why most investors and traders are “long only” and why, perhaps until just the past few years, short sellers were viewed as investing pariahs. This line of thinking has long applied to leveraged exchange-traded funds where “what goes down must go up” thinking has consistently led to more money going into leveraged bull funds over their bearish rivals.
A Little About Leverage
Indeed, it is rare that leveraged bear ETFs pull in more cash than their bull counterparts, but that is what has been happening in recent months.
“Since the end of February, investors who use leveraged exchange-traded funds have sent $1.3 billion into exchange-traded notes that pay two or three times the inverse of the market’s return, meaning they go up when stocks fall. So big have been the inflows that the market capitalization of inverse products is on the verge of eclipsing bullish notes for the first time since 2013,” according to Bloomberg.
The Bloomberg article noted money has been pouring into the ProShares UltraShort S&P 500 (ETF) (NYSE: SDS) and the ProShares UltraPro Short S&P 500 (NYSE: SPXU) since February. The two ETFs have added a combined $1.43 billion since February. SDS attempts to deliver double the daily inverse returns of the S&P 500 while SPXU seeks to deliver triple the daily inverse returns of the benchmark U.S. equity index.
Other data confirm traders' increased in leveraged bear ETFs. For the five days ended May 10, six of the 10 Direxion ETFs with the largest volume spikes were leveraged bear funds, according to issuer data. Direxion is the second-largest issuer of inverse and geared ETFs.
For the 30-day period ended May 10, the Direxion Daily Large Cap Bear 3X Shares (NYSE: SPXS), another triple-leveraged bearish play on the S&P 500, averaged daily inflows of almost $3.5 million. The Direxion Daily Small Cap Bear 3X ETF (NYSE: TZA), which tries to deliver triple the daily inverse returns of the Russell 2000, saw inflows of over $3 million per day over that period. Direxion's equivalent bull ETFs averaged daily outflows over that time.
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