Leveraged Small Cap ETFs Gain While Volatility ETFs Lose – Weekly ETF Fund Flows

| June 10, 2013 | 0 Comments

fund flowsToday we’re taking a look at ETF fund flows in – ProShares Ultra Russell 2000 (UWM) and ProShares Ultra VIX Short Term Futures (UVXY).

ETF fund flows are a valuable indicator of what traders are thinking.  It takes a lot of buying or selling to drive millions of dollars into or out of individual ETFs.

They’re something traders use to find trends and gauge investor sentiment.  And it can help you pinpoint which ETFs could be next to make a big move higher or lower.

Let’s take a look at three ETFs that near the top of the net inflows and net outflows from June 3rd to June 7th.

ETFs focused on small cap stocks in the US continued strong inflows last week.  Last week it was the iShares Russell 2000 Index (IWM).  This week the ProShares Ultra Russell 2000 (UWM) led all ETFs with over $1 billion in inflows. 

The difference between IWM and UWM is that UWM is a leveraged ETF.  It seeks investment results that are twice as much as the daily performance of the Russell 2000 index.  So far this year UWM is up 35%…  a little more than twice as much as IWM’s 16.5% gain.

Investors clearly see small caps as a compelling investment compared to other higher risk investments like emerging markets.

One thing’s for sure, investors are voting with their dollars and right now they’re pouring massive amounts of money into small cap ETFs.  If you’re looking for the next segment of the market that will outperform, take a closer look at small cap stocks.    

At the other end of the spectrum, ETFs focused on market volatility led the way with the most redemptions last week.  Last week investors pulled a whopping $2.6 billion out of ProShares Ultra VIX Short-Term Futures (UVXY).

UVXY seeks to replicate twice the return of the S&P 500 VIX Short-Term Futures index.  This index measures the movements of VIX futures for expected volatility of the S&P 500 over the next 30 days.

Short term traders use UVXY to profit from short term spikes in market volatility.  The leverage the ETF uses can lead to big short term profits. 

However, holding UVXY has been ugly.  It’s down 70% so far this year! 

After falling below $10 per share, ProShares decided to perform a 1 for 10 reverse split after the market closed on Friday.  UVXY opened for trading on Monday at 10x the price per share and with one tenth as many shares outstanding as it closed Friday.

Judging by the massive outflow of money ahead of the reverse split, investors didn’t feel like holding onto their shares of UVXY as it underwent the reverse split.  And I can’t blame them!

Put simply, there’s no reason to hold a leveraged ETF like UVXY when it undergoes a reverse split.  Theoretically, the split shouldn’t have an impact on the value of the holdings.  But then again, there’s no telling exactly what impact the reverse split of a leveraged ETF on a speculative index like VIX futures will have on the VIX futures market itself.

Here’s the bottom line… most investors shouldn’t be messing around with ETFs like UVXY in the first place.  And even if you do, there’s no reason to expose yourself to unknown risks by holding it through a reverse split.  

That wraps up this week’s ETF fund flows…

Keep in mind, there’s a lot of information about ETF fund flows.  And it can be a very useful tool as long as you know what you’re looking for.

Good Investing,

Corey Williams

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Category: ETFs, Investment Style ETFs, Market Analysis

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets three times a week. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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