Good Harbor Piles Into Equities, Sells Bonds

March 06, 2014

The ETF strategist known for its tactical model portfolios appears to be turning bullish.

The iShares 3-7 Year Treasury Bond ETF (IEI | A-74) and the iShares 1-3 Year Treasury Bond ETF (SHY | A-97) have each bled more than $3.5 billion in assets this week, outflows that sources say are tied to Good Harbor Financial’s portfolio rebalancing. The Chicago-based ETF strategist is said to be unwinding bond exposure and buying equities this month.

As IEI bled $3.5 billion and SHY $3.7 billion since Monday, funds like the iShares Core S&P 500 (IVV | A-97), the ProShares Ultra Russell 2000 (UWM) and the ProShares Ultra S&P 500 (SSO) have been on the receiving end, trading sources said, and our data show.

IVV has raked in $3 billion so far this week, while twice-leveraged UWM and SOO—both of which are known as short-term tactical tools—have each gathered more than $1 billion. The iShares Russell 2000 ETF (IWM | A-82) has seen $345 million in inflows—action that trading sources tell ETF.com is linked to Good Harbor. Good Harbor executives were not immediately available to comment.

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Chart courtesy of StockCharts.com

The Wall Street Journal was first to report that Good Harbor’s monthly portfolio rebalancing was imminent earlier this week, and that it was likely to impact markets. The journal today said that Good Harbor’s selling did indeed pressure the $11.8 trillion Treasury market.

There’s no question that Good Harbor’s footprint in the ETF market is significant—the 11-year-old firm has more than $10 billion in assets. But 10-year Treasury yields have risen only 8 basis points so far this week to 2.74 percent. Yields rise as bond prices drop.

Perhaps what’s more telling is that the tactical shop, known for its focus on risk premiums, and on how people’s changing views on risk are a key driver in market performance, is piling into equities at a time when the S&P 500 hit yet another record high today.

Easing concerns about Russia’s presence in the Ukraine, and a prevailing sentiment that the U.S. and European economies will continue to expand this year, have many investors returning to risk-assets after momentarily running into bonds and gold for safety.

The $157 billion SPDR S&P 500 ETF (SPY | A-97) has rallied 6.2 percent in the past month alone, after a weak start to the year. The fund is now 2 percent higher year-to-date.

 

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