Big Shorts and Gold Rush dominate ETP flows

ETF Securities’ Gold ETPs received inflows of $2.3bn during the first half of 2016, including $1bn since the referendum, as investors sought out safe haven assets.

Preference for Short over Long leveraged products reflected investment bearishness and a willingness to play market volatility. ETF Securities’ S&L Equity platform has attracted $101m YTD, as turbulent equity markets have seen investors engage in high levels of tactical investing. Currency ETCs also saw AuM rising by 27% to $481m.

James Butterfill, ETF Securities’ Head of Research & Investment Strategy, said : “By far the largest inflows into ETF Securities ETPs since the beginning of the year have been into Gold ETPs, with total inflows of $2.3bn in the first half of 2016. This increase reflected investors flocking to safe-havens prompted by Brexit; uncertain monetary policy from the European Central Bank and the US Federal Reserve; and political worries over the US presidential race. As speculative positioning in Gold has reached record highs, some investors have looked towards Silver as an alternative, which has seen inflows of US$166m and is more attractively valued relative to gold.”

Commenting on ETF Securities’ flows, Townsend Lansing, Head of ETCs, said : “After a gold rush that appeared to reflect pure “risk off” sentiment from investors, the S&L and FX flows seem to signify investors are using ETPs to take tactical opportunities amid the market volatility”.

“Before the referendum, we saw historic highs for flows into Short GBP funds, as investors hedged the currency risk implicit in the referendum. But the appetite for short equity products suggests investors expect further market oscillations during Brexit negotiations; the ongoing experiment with negative interest rates, and elections in the US, France and Germany.”

Other areas with strong inflows were Currency hedged Commodities ($116mn), and Emerging Markets Fixed Income, (US$253mn), where investors have turned to EM debt as a source of yield, and see relatively attractive values and decent underlying fundamentals.