A Bullish ETF Trader With $6 Billion Just Made Some Risky Bets

(Bloomberg) -- One big investor flipped the risk-on switch this week, trading about $6 billion worth of exchange-traded funds as global markets flashed bullish signals following a brutal December.

On Wednesday, a frenzy of fresh trading hit U.S-listed products, and was likely the work of a single manager, according to Josh Lukeman, head of ETF market making for the Americas at Credit Suisse Group AG. Among the moves: yanking cash from investment grade bonds and splashing it into high yield, and swapping out developed-market equities for EM.

The shift comes as a dovish Federal Reserve, steady economic growth and optimism over trade renew investor appetite for risk, with U.S. high-yield funds taking in monster inflows while stocks and oil get off to roaring starts this year.

A Bullish ETF Trader With $6 Billion Just Made Some Risky Bets

“It looks like the same money manager made some big portfolio changes,” said Mohit Bajaj, director of exchange-traded funds at WallachBeth Capital. “No one wants to sit on the sidelines if this run continues to happen.”

The $31 billion iShares iBoxx Investment Grade Corporate Bond ETF, or LQD, suffered an outflow of over $907 million, its biggest since February 2018, according to data compiled by Bloomberg. The bulk of Wednesday’s outflows likely came from this trader, who sold close to 5 million shares worth $568 million at 2:06 p.m. in New York on Wednesday.

A couple of hours earlier, the same investor likely bought a block of the $2 billion XTrackers USD High Yield Corporate Bond ETF, or HYLB. A trade of 4.7 million shares worth $229 million hit the tape at 12:11 p.m.

A swift uptick in U.S. junk bond prices is convincing strategists to significantly upgrade their annual forecasts. Goldman Sachs Group Inc. strategists expect junk offerings to remain subdued this year -- helping boost prices -- but say it’s a different picture for investment grade, with issuance already tracking 10 percent above last year’s level.

Developing-market assets were also on the menu for the money manager, who bought just over $1 billion of the iShares Core MSCI Emerging Markets ETF, or IEMG, pushing Wednesday’s turnover for the fund to a record high. At the same time, they dumped $876 million of the iShares Core MSCI EAFE ETF, ticker IEFA, which tracks developed market stocks.

A Bullish ETF Trader With $6 Billion Just Made Some Risky Bets

The buyer also allocated to the iShares MBS ETF of mortgage-backed securities, as well as value and growth funds from Vanguard. All in, the investor traded over $6 billion worth of funds.

Developing-market assets are also off to a running start this year as monetary and trade worries ease -- even as strategists warn that EM bulls risk getting caught in a stampede.

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