Wild Flows, Shorting Ark and an Unlucky Reshuffle: The Exchange

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Welcome to The Exchange, your round-up of the biggest and most interesting stories from one of  the hottest corners of Wall Street.

In the week when Jerome Powell stayed dovish and the delta variant surged: Cash poured into U.S. ETFs, a JPMorgan strategist took aim at Cathie Wood’s top fund, and a quant-based strategy went awry.

These are the stories you need to read.

Flows Get Crazy

What happened: The U.S. ETF market is on the brink of luring more new cash than in any year in history — and there are five months to go.

Wild Flows, Shorting Ark and an Unlucky Reshuffle: The Exchange

Why it matters: This isn’t just the story of “inflows to everything,” though rising markets have helped. Hidden in the flows is a historic capitulation by mutual fund managers, who are now jumping into the ETF business. Meanwhile, actively managed fund launches are off the charts as Cathie Wood inspires a whole new sector of the industry.

What’s in our story: Claire Ballentine and Francesca Maglione detail the flows, trends and firms behind the unprecedented deluge of cash.

Read it here.

Shorting Cathie

What happened: JPMorgan Chase & Co. derivatives strategist Shawn Quigg is recommending investors bet against Ark Investment Management’s flagship fund.

Wild Flows, Shorting Ark and an Unlucky Reshuffle: The Exchange

Why it matters: Cathie Wood’s Ark has been one of the hottest firms on the Street this year thanks to her bets on tech disruption and popularity with investors. Her main fund has bounced back from a rough patch, but if Quigg is right that will end as Treasury yields rise in the second half.

What’s in our story: Joanna Ossinger reports on the eye-catching call and the reasoning behind it.

Read it here.

Timing is Everything

What happened: The reflation trade is stalling and it’s miserable timing for one smart-beta ETF.

Wild Flows, Shorting Ark and an Unlucky Reshuffle: The Exchange

Why it matters: Index funds are a great way to invest, but they come with imperfections. In this case, a $15 billion fund adjusted its portfolio alongside an index rebalance that came at exactly the wrong time — it sold tech at a low and bought value at a high.

What’s in our story: We look at what happened and why, and connect it to broader market indecision on the fate of the reopening trade.

Read it here.

Weekend Reading

Limited Intel

The first story above presents the U.S. flow story, but how is the big picture? In short, it's also looking pretty healthy.

Wild Flows, Shorting Ark and an Unlucky Reshuffle: The Exchange

Global exchange-traded product flows are at $667 billion, within range of last year's record of $745 billion. And the appetite of investors for risk is clear: stock-focused ETPs account for 74% of total inflows this year versus an average of 64% since 2014.

ETF Jeopardy!

A $5.3 billion tech-focused fund that saw more than $200 million exit in a day this week after its largest holding boosted sales projections for the third quarter. The problem? The company also said its gross margin would fall — a bad sign as it is the dominant player in its industry, and around 14% of the ETF. 

Wild Flows, Shorting Ark and an Unlucky Reshuffle: The Exchange

(That’s the answer. The question identifying this fund will appear next week.)

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