The $270 Million Pain of One Invesco ETF Is Another's Gain

(Bloomberg) -- A bad day for one exchange-traded fund was a banner day for another as about $270 million moved between two Invesco Ltd. products this week.

The PowerShares S&P 500 High Beta Portfolio ETF, which owns the stock of large companies deemed most sensitive to market fluctuations, lost almost half its assets on Monday, data compiled by Bloomberg show. That same day, a similar amount flowed into the PowerShares S&P Emerging Markets Momentum Portfolio, boosting its assets from less than $2 million, the data show.

The money manager making and breaking these funds? Gradient Investments, based in Arden Hills, Minnesota, according to a person familiar with the matter, who asked not to be identified because the details are private. The firm, which oversees $1.5 billion, owned $267 million of the S&P 500 fund as of March 31, regulatory filings show.

Gradient declined to comment on the details of its trades. The company runs a tactical rotation strategy that invests in markets around the world that it identifies as having the most momentum, according to its website. It reviews its allocation at the end of every month.

The shift shows just how quickly assets can vanish from smaller ETFs, those with less than $1 billion of assets, which account for about 80 percent of funds in the $2.9 trillion U.S. market. A growing number of financial advisers -- like Gradient -- are creating dynamic portfolios for their clients out of ETFs, while other funds are increasingly using ETFs to move between different sectors. 

That makes similar events more likely going forward, according to Todd Rosenbluth, director of ETF and mutual funds at CFRA, an independent research provider.

“If you’re an investor that’s tracking flows and you see money fly into this ETF and you go, ‘oh, that looks good,’ you better be prepared for the money to fly back out when the model says otherwise,” Rosenbluth said by phone. “The assets under management may not be as sticky as someone thinks.”

The PowerShares S&P 500-focused fund had $271 million under management, down from $538 million last week. Its share price is little changed since the trade.

“This is a great example of how ETF strategists can benefit from the efficiency and underlying liquidity in ETFs,” said Eric Pollackov, global head of ETF capital markets for Invesco’s PowerShares unit. “The swap provides a concrete example that the liquidity in an ETF is often much greater than the average daily trading volume and assets of that ETF.”

To contact the reporters on this story: Rachel Evans in New York at revans43@bloomberg.net, Wendy Soong in New York at csoong@bloomberg.net.

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Kenneth Pringle, Dan Wilchins