Small Cap ETFs Lose While Leveraged S&P 500 ETF Gains – Weekly ETF Fund Flows

| November 11, 2013 | 0 Comments

fund flowsToday we’re taking a look at ETF fund flows in ProShares Ultra S&P 500 (SSO), iShares Russell 2000 (IWM), and ProShares Ultra Russell 2000 (UWM).

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

Fund flows are 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 the ETFs that experienced large inflows or outflows last week…            

ProShares Ultra S&P 500 (SSO) led all ETFs with $1.3 billion in net inflows last week.

SSO is a leveraged ETF.  It’s designed to go up or down twice as much as the S&P 500 on a daily basis.  It is up 55.7% year-to-date while the S&P 500 is up 26.3% year-to-date.

You’ll notice SSO’s performance has actually done better than twice as much as the S&P 500.  This is due to the impact of daily compounding.  In this case, the impact of daily compounding has tacked an additional 3.1% gain onto SSO’s year-to-date performance.

When you hold a leveraged ETF longer than a single day, the returns will likely differ in amount and possible direction from the underlying index.

In short, leveraged ETFs shouldn’t be held in times of increased market volatility.  The impact of daily compounding when the market is up one day and down the next can be disastrous for investors.

The large inflow of money into SSO implies the large investors that often use leveraged ETFs expect the S&P 500 to continue marching higher without much volatility.

This is a strong vote of confidence in large cap stocks.  However, last week’s fund flows indicate investors don’t have the same belief in small cap stocks…

iShares Russell 2000 (IWM) and ProShares Ultra Russell 2000 (UWM) experienced large outflows last week.  IWM lost $2.2 billion while UWM lost $1.4 billion in assets.

These two ETFs track the Russell 2000 small cap index.  IWM is the largest small cap focused ETF with $23 billion in assets.  And UWM is a leveraged ETF that’s designed to go up or down twice as much as the Russell 2000 on a daily basis.

The outflows from small-cap focused ETFs aren’t surprising given their recent performance.  Over the last 15 trading days, the Russell 2000 has fallen 1.5% while their large-cap stocks have gone up 1.5% over the same time.

This is a continuation of the same type of ‘risk off’ fund flow action we have seen over the last few weeks.  Investors are moving money from riskier sectors like technology to defensive ones like consumer staples.  And now they’re moving from riskier small-cap stocks into less volatile large cap stocks.

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, 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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