These 3 Leveraged ETFs Are Seeing The Most Inflows As Earnings Season Chugs Along.
The first half of 2019 is in the books, but that doesn't mean investors have any more clarity on any of the macro headlines that have been gripping the market since at least the start of the year.
The trade war with China still has no end in sight. Central banks around the world, led by the Fed, are enacting easing policies, hinting that the economy is on shaky ground. And, in spite of recent volatility, the market is still up about 14 percent.
Adding to the uncertainty is the fact that the current earnings season has proved somewhat mixed compared to previous quarters. While about 80% of companies have so far beaten analyst estimates, those estimates were lowered significantly near the start of the year in anticipation of the aforementioned slowdown.
Because the street's conviction remains obscure, we took a look at the fund flows for an array of leveraged and inverse ETFs offered by Direxion to discover where investors are pooling money.
Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares (NYSE:GUSH)
Hope springs eternal for a sustained rally in oil prices, as evidenced by a net $112 million inflow in Direxion's leveraged oil explorers and producers fund since the start of June What's more, half of that volume has come in the final few weeks of that span.
Despite some indication of price support through much of 2019's first half, high inventory levels, low demand and fears of a global economic slowdown have stymied OPEC's efforts to maintain scarcity enough to push the commodity much higher than the key $60 level. Although Brent Crude has wavered near that benchmark, explorers and producers have not benefited from the inconsistent price gains seen through the summer, putting GUSH to a new all-time low.
Direxion Daily S&P 500 Bear 3X Shares (NYSE:SPXS)
Recently coming off an all-time low is Direxion's inverse leveraged broad market fund. The fund saw a massive influx of investor interest amounting to $82.2 million in net inflows over June and July. In fact, inflow for this bear fund over all of 2019 was also extremely high at net $300 million.
Of course, recent redemptions in the fund, amounting to about $55 million, have cut into its net inflow. SPXS's fund flow is still net positive between June and now at $44 million.
There are a lot of factors that might be behind the persistent uptick in trader interest in SPXS. For one, recent history shows that the S&P 500 has had a hard time maintaining new highs, which the heavy sell-offs following highs in February 2018, October 2018, May 2019 and early August have revealed. On top of that, lower revenue expectations during earnings season, an ongoing trade war between the two largest economies in the world and persistent signs of a global slowdown have only added ammunition the bear thesis.
Direxion Daily Gold Miners Index Bear 3X Shares (NYSE:DUST)
Of course, there are always counterexamples to a thesis. While SPXS traders might be expecting a bearish reversal in stocks, their capital pales in comparison to the $376 million net inflow that has funneled into Direxion's bearish gold miner fund in just two months. Gold being the de facto safety investment, the bearish call on the precious metal could be read as a vote of confidence for stocks.
However, it's important to note that gold still finds itself at a high-water mark. But, so are most asset classes, including the U.S. dollar. That's a rare turn with market physics being what they are, since stocks and the U.S. dollar tend to thrive during economic expansion and gold benefits from economic uncertainty.
Ultimately, the conclusions drawn from these fund flow data will be tested over the rest of 2019, and will largely rely on which asset class blinks first. Stay tuned.
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