ETF Weekender: Cathie Wood Faces a Big Short and Day Traders Battle Quants
(Bloomberg) -- Welcome to the ETF Weekender, your round-up of the biggest and most interesting stories from the hottest corner of Wall Street.
Somehow it was a week of existential doubt in the stock market, even as the S&P 500 remained within touching distance of its all-time high and the earnings stragglers lived up to this season’s stellar standard. There was no such angst in ETF land, where investors took the “selloff” in their stride, pouring in cash as issuers kept the filings coming.
In this week’s weekender: Michael Burry goes after Cathie Wood (and she responds), quants try to figure out why day traders like thematic stuff (like Wood’s ARKK), and investors are looking for an EM experience without the biggest EM economy.
These are the stories you need to read.
Call It the Big Ark Short
What happened: Quarterly filings revealed that Michael Burry of “The Big Short” has been betting against one of the hottest money managers on Wall Street — Cathie Wood.
Why it matters: Thanks to the movie version of Michael Lewis’s best-selling book, Burry’s mega-successful wager that mortgage securities would implode is legendary, with his role played by Christian Bale. Burry was already indirectly betting against Wood with a huge bearish Tesla position, but the latest disclosure means two of the most famous names in the industry are head-to-head.
What’s in our story: We reported the news when the filing landed and explained the significance. Later, we moved fast to detail Wood’s lengthy Twitter rebuttal.
Painstaking Systematic Discipline Vs. Funny Emojis
What happened: New research shows that the boom in thematic funds — largely powered by the retail investing crowd — is going directly against the strategies favored by many quants.
Why it matters: Depending on your point of view, this could be good or bad. Too much money moving against them could spell trouble for quants by messing with their time-tested strategies. On the other hand, it might store up an even bigger reversal when the time comes — after all, those day traders are chasing the types of trades that systematic investors say lose in the end. Either way, it’s amusing to see quants trying to calmly rationalize the strategies of a group who are typically just in it for the tendies.
What’s in our story: We dive into the research to explain the market battle.
China Is Too Crazy Even for EM
What happened: Emerging-market investors are turning to an ETF that excludes the world’s second-biggest economy.
Why it matters: Over the past decade, China has grown to dominate EM, taking up an ever-bigger slice of developing-nation indexes and increasingly driving returns. But the corporate crackdown in Beijing has been so big and the damage to stocks so severe that investors would rather have EM exposure that cuts out one of the most reliable sources of returns.
What’s in our story: We track the flows and tell the tale of EMXC’s rapidly growing popularity.
Want more? Bonus weekend reading
- Leveraged Bet on Homebuilders Is Surging in Hot Housing Market.
- Infrastructure Bets Push PAVE ETF Assets to Record $4.5 Billion.
- World’s Biggest ETF Gets $6 Billion in Day of Nervous Trading.
- Bearish Bets on Stocks Outside the U.S. Emerge Timed to Fed.
- SoFi Sued by SEC Over Conflicts in Proprietary ETFs.
Good Intel: Bitcoin ETF Surrogates
A glimpse at the Bloomberg Intelligence analysis available on the terminal.
Blockchain ETFs were among the best performers over the past three weeks as Bitcoin surged 56% to more than $46,000. They tend to have a high correlation to the cryptocurrency's price, with most running at around 0.9 over the past few weeks. (Gold-mining stocks had a 0.8 correlation to gold in the period.) If the SEC ever approves a Bitcoin ETF, the blockchain versions will have trouble. Until then, they are arguably potential proxies.
This tech ETF buying a foreign nation’s companies saw a lot of love in recent weeks as investors bet the stocks it held wouldn’t see much more punishment. They were wrong: Since flows to the $4.6 billion product hit a record on July 30, the ETF is down about another 9% amid increasing political pressure.
That’s the answer. The question identifying this fund will appear next week. Last week’s question: What is the iShares U.S. Broker-Dealers & Securities Exchanges ETF, ticker IAI?
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