Blog

The Hot Bernanke ETF Trade

May 07, 2013
Share:

Last week’s big bond ETF inflows makes you wonder just what institutions know about the Fed.

 

Most weeks, ETF flows follow some sort of a pattern: Big funds gains assets, big funds lose assets. Then there are weeks like last week where one fund has a near-7,000 percent (not a typo) increase in assets, and we are left scratching our heads.

Last Wednesday, the little-followed, largely overlooked ProShares Ultra 7-10 Year Treasury ETF (NYSEArca: UST) went from $12 million in assets under management to more than $833 million overnight.

The increase in assets of more than almost 6,000 percent overnight was enough to catch our eyes on its own, but the fact that it accompanied a 53 percent increase in assets in a similar, multibillion-dollar ETF—the iShares Barclays 3-7 Year Treasury Bond Fund (NYSEArca: IEI)—really rang the alarm bells.

In the five days through last Thursday, there were more than $2.5 billion in net creations in the two funds, and on Friday, UST had added another $240 million in assets. In other words, someone is clearly making a huge bet on these two funds that target the middle of the Treasury curve.

The UST trade is especially aggressive, considering it is part of the “Ultra” line of products from ProShares, whose promised returns are equal to two times the daily return of the reference index.

In the case of U.S. Treasurys, that means whoever is responsible for these outsized inflows is not only betting hard on a further decline in yields in the 7- to 10-year pocket of the curve, but doing so with leverage.

That may help explain why that additional $240 million in assets came into the fund between Friday and Monday as the daily reset of the most leveraged funds requires an investor to “true-up” his or her exposure due to the “path-dependent” nature of levered fund returns.

Still, it’s hard to look at these two trades in isolation given the magnitude of these inflows. When two similar, albeit different, strategies see such massive inflows, it is hard not to point fingers at institutional investors.

 

ETF.COM CHANNELS

Want to learn more about smart-beta ETFs? Check out our smart-beta guide, essentials library and ETF screener!

ETF DAILY DATA

The AlphaDex financial fund 'FXO' led inflows on Tuesday, May 26, but net outflows and falling stocks pulled total U.S.-listed ETF assets down to $2.152 trillion.

A slew of redemptions from a number of iShares bond funds helped fuel that firm's issuer-leading outflows on Tuesday, May 26. Meanwhile, net outflows and a falling market dragged down total U.S.-listed ETF assets to $2.152 trillion.

ETF.COM ANALYST BLOGS

By Olly Ludwig

Yields will one day head higher, so is it time to get bond exposure outside the U.S.?

By Rachael Revesz

Stop dancing around the subject, call women ‘women’ and let’s be a more visible part of this industry.

By Olly Ludwig

It’s no secret that hedge funds love ETFs, but what’s less appreciated is that their love of ETFs will likely spell their demise.

By Olly Ludwig

Yes, bond yields are ticking higher these days, but it’s important to keep the whole yield-curve picture in mind.

ETF INDUSTRY PERSPECTIVE

By Nasdaq Global Indexes

Bond exposure or bond performance? Only defined maturity indexes provide the latter.

By Invesco PowerShares

Invesco PowerShares and Market Strategies International’s second annual survey provides vital insights about smart beta and ETFs overall.

By Invesco PowerShares

Investors are implementing smart-beta exchange-traded funds (ETFs) in their portfolios in a variety of ways and for different reasons.