Short USD ETF flows jump as hopes of Trump bump slump

Aug 22nd, 2017 | By | Category: Alternatives / Multi-Asset

ETF Securities has reported a rise in flows into its short US dollar ETFs in its latest weekly flows analysis for the week starting 14 August 2017. Morgane Delledonne, fixed income strategist at ETF Securites, identified the unclear commitments of Trump’s administration around pro-growth policies as the driver behind the flows.

Short USD ETF flows jump as hopes of Trump bump policies slump, reports ETF Securities

Morgane Delledonne, assistant director – fixed income strategist, ETF Securities.

“During the course of the week, inflows into short USD – long EUR ETPs rose by $3.6 million despite the ECBs concern about the strength of the euro as revealed in the minutes of the July meeting,” said Delledonne. “The minutes from the latest meeting of the Federal Reserve (Fed) also failed to offer any comfort to investors who are long the dollar.

“The minutes of the latest FOMC meeting reflected the lack of consensus within the Fed on the conduct of the next monetary policy actions. In aggregate, there have been $13m of inflows into short USD ETPs since the beginning of the month.”

However, strong economic data from the US did provide some support for the dollar but was not good news for gold investors. Delledonne remarked: “US retail sales and the Empire Manufacturing Index for August surprised to the upside and resulted in a strengthening of the US dollar and rising bond yields last week while putting downward pressures on gold. We saw $107m of outflows from our gold ETPs during the week, as geopolitical tensions also eased.”

Gold pared some of its losses later in the week amid concern about the outlook for President Trump’s administration after the President announced that two business advisory councils were to shut down in the wake of recriminations following violence in Charlottesville on 12 August. “On Friday, gold prices rose on higher demand for safe haven assets after the two terrorist attacks in Barcelona,” added Delledonne.

ETF Securities offers the ETFS Physical Gold (LON: PHAU), launched in April 2007, which is an exchange-traded commodity (ETC) and gives investors exposure to the gold price by buying and storing physical gold bullion. The fund has assets under management (AUM) of $5.9bn with a management fee of 0.39%.

Other notable flows during the week included $18m outflows from oil ETPs, the 5th consecutive week of outflows, bringing total outflows for August to $214m so far. US crude production rose to a two-year high of 9,502 thousand barrels per day according to Energy Information Administration data released during the week, partly offsetting the efforts of OPEC to scale down global production.

Delledonne said: “Investors have withdrawn $18m from long oil ETPs, probably taking profits as crude prices are up nearly 7.8% over the past month. We expect oil to continue to trade between $40-55 per barrel.”

In the fixed income space, emerging market government bonds saw outflows during the week, bringing to an end a four-week run of inflows. Delledonne commented: “We saw $22m of outflows this week, while year-to-date inflows into emerging market debt ETPs remain elevated at $64m. After gains in local government bonds of around 11% this year, investors are taking profit from the strong performance of EM debt in local currency since January in anticipation of a stronger US dollar that could challenge EM assets.”

ETF Securities offers the ETFS Lombard Odier IM Emerging Markets Local Government Bond Fundamental GO UCITS ETF (LON: LOCL), launched in September 2015, which gives exposure to emerging market government debt in local currencies. Country weights are determined according to a Lombard Odier Investment Management (LOIM) proprietary fundamental weighting methodology, which uses fundamental factors to assess issuers’ creditworthiness and identify those believed to be best placed to repay their debt.

The fund has $317m in AUM with a total expense ratio of 0.55%.

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