The Perfect Monster ETF Trade Just Played Out

May 11, 2017

Sometimes the best stories in ETF-land are the ones that go unnoticed. Sure, one hiccup occurs somewhere in the system and we see headlines for weeks (I’m looking at you, GDXJ (VanEck Vectors Junior Gold Miners ETF), “Popular Gold Miner ETF To Change Dramatically”). But most of the time, ETFs do incredible, extraordinary things, and nobody notices.

The best recent example of this was a once-little-known fund named the PowerShares S&P Emerging Markets Momentum Portfolio (EEMO). This is a fund that, until May 1, was a poster child for forgotten funds with under $2 million in assets, going days and weeks at a time without trading. Its FactSet “Tradability” score is just 29 out of 100, and its time-weighted average spreads were over 2%.

Yet all this time, EEMO was just waiting to get noticed, and here’s the thing: Like a lot of funds, it’s a perfectly fine ETF. It charges an utterly reasonable 0.29% expense ratio for access to a concentrated portfolio of emerging market stocks that exhibit classic momentum characteristics. This is essentially a hopped-up version of a standard emerging market fund, which has tended to outperform in up markets and underperform in flat or down markets.

Then on May 1, someone put through a $268 million trade on EEMO.

This is a rare case where the chart doesn’t actually tell you much of the story. 

The orange line in the chart above is the indicative value for EEMO on May 1. It’s flat for good reason—most of the securities in the portfolio don’t trade during U.S. hours, so what we’re really seeing here is the previous night’s net asset value (NAV) being adjusted for those few securities that were open, as well as currency moves. The little white and blue dots are trades (white is an uptick, blue is a downtick).

 

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