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Record Equity ETF Creation In October
Every day for the past several years, sometime after 3pm, bullish market participants exhale a sigh of relief when as if out of nowhere, an "unexpected" surge of buying lifts stocks into the 4 pm close. There are several explanations for what some have dubbed if not Divine, then certainly centrally-planned intervention. This is the time when ETF creation and (far less frequently) redemption takes place. As a result, in a world in which the bulk of liquidity has shifted away from single name stocks and even futures toward ETFs, trends in the creation and redemption of ETFs are key to watch to determine how the market may move purely for to technical reasons (since fundamentals died some time in 2009). Which is why we note, with little surprise, that according to SocGen, Equity ETFs posted a record level of monthly creations in October, driven by US, regional eurozone and UK indexations, perhaps explaining the relentless levitation of the market on ever lower volume especially in the latter part of the day.
More details from SocGen:
Equity ETFs posted record monthly creations in October despite $1.3bn redemptions on the iShares Core DAX UCITS ETF.
Excluding these redemptions, German indexations would have shown $700m creations. More broadly, we observed renewed interest in European equities (bar Italy), in particular in the eurozone regional and UK benchmarks, even though European markets underperformed in spite of the AQR results. The main contributors to ETF share creations were however US benchmarks with $4.2bn new shares, which did not look contradictory to the US macro recovery. By contrast, EM equity ETFs – and EM bond ETFs to a lesser extent – reported monthly redemptions, not seen since March 2014, probably affected by concerns about global growth, liquidity restrictions and fears of deflation.
The complete breakdown by equity ETFs:
How does SocGen keep track of ETF creation and redemption? It explains below.
Methodology
ETF Market Signals aims to provide a concise picture of investor risk appetite based on capital markets and macroeconomic data. For this purpose, we monitor two key indicators, ETF creations/redemptions and ETF premiums/discounts. Our universe currently includes all ETFs listed in Europe.
ETF share creation and redemption
ETFs create and redeem shares on an ongoing basis like all other open-end funds. The ETF share creation/redemption mechanism is, however, unique in the sense that it exclusively occurs between ETF promoters and so-called Authorized Participants (AP). APs are typically market makers or broker-dealers who contractually buy (sell) shares of an ETF directly from (to) the fund in exchange for baskets of the underlying securities or cash. The creation/redemption mechanism helps provide liquidity to the secondary market.
For each ETF, share creation/redemption is calculated by multiplying the change in shares outstanding over the period (week or month) by the ETF Net Asset Value (NAV) at the end of the period. The source for this market data is Bloomberg. The creations and redemptions are then summed to calculate aggregate creations and redemptions by ETF category.
We calculate the ratio of ETF share creations or redemptions to assets under management (AuM) at the beginning of the period. This is to remove the bias from strong disparities in ETF size, and it highlights the significant progress in smaller categories.
Creations and redemptions provide a good picture of primary market activity but do not fully reflect investor sentiment. ETF shares are not systematically created or redeemed to meet client orders, but this occurs only when secondary market liquidity is not sufficient to meet investor needs, or when it is less costly to create or redeem than to purchase or sell ETF shares in the secondary market. The question is then how to capture the secondary market direction to fully gauge investor sentiment. This can be achieved by analyzing ETF premiums and discounts as explained below.
As ETFs represent a limited percentage of the market, share creation/redemption monitoring can be misleading as an indicator of overall activity within the market (European ETPs account for $420bn, only 5% of the Stoxx 600 market cap). That said ETPs are increasingly used as a trading/market access/investment tool by market participants (traders, portfolio managers, fund selectors). As such, investments made in ETPs can still provide a useful indicator of how investors are tactically adjusting their portfolios.
Now, to mitigate the lack of representativity, we ensure that 1/ noteworthy flows in a given ETF market segment do not come from one single ETF but rather several; and 2/ noteworthy flows on a given ETF do not come from one client (e.g. is the result of an isolated asset allocation decision) by liaising with ETF promoters to get some feedback about client activity. In addition, we may cross-check our observations with the US ETP primary market activity ($1,600bn of AuM).
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Now if only someone could create an ETF (preferably 3x levered) that only buys itself when other ETFs are in the process of creating ETFs, then the first momentum driven perpetual engine will finally be a reality.
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And a shitload are on the deathwatch list
the levered ones are a sham (to meet expected return)
and the decay not friendly in the lest
ETF as in Electronically Transmitted Fuckings?
Free KY Jelly for everyone....
have they created an ETF that plays the 3:30 bounce?
"Now if only someone could create an ETF (preferably 3x levered) that only buys itself when other ETFs are in the process of creating ETFs, then the first momentum driven perpetual engine will finally be a reality."
Sheer genius! It's what sets ZH apart.
Physical limits still apply.
More ETFs... More terrabites... More electricity... More energy put in for more operating ETFs.
I think we should have a power lunch, and invite the Venture Captial guys, and get right on this; this is obviously the 'next big thing".
Shorted into existence?
Drifting higher on pixie farts.
Congress is already structuring a pixie fart pipeline bill thank you very much.
who'd of thunk electrons could wreck so much havoc
I'm assuming you meant Elections. The only thing that changes is which gang of criminals gets first dibs to grab double handfuls of the loot they extract from this country.
Notice I said they extract it from the country, not the taxpayers. The taxpayers haven't covered the price of the extraction for many years now.
They never will. But a day of reckoning is coming. When it gets here the Chinese, the multinational corporations, the hedge funds and everybody else who has claims against the US will be lined up to get their share.
All that federal land? It'll be sold off to satisfy debts. So will the water systems, the highways, the government buildings, all of it will go on the auction block.
That's what these people are doing. They're selling off claims to every asset in this county.
When it all comes crashing down and it's time for the IMF to come in and bail the US out. We're following the same script as ARGENTINA, and the result will be the same.
When Argentina went down the middle class was destroyed and the poverty rate rose to 57%. That's where we're headed, and the Republicans don't give a damn anymore than the Democrats did.
The Jackels are goimg to reek Havok when all is said & done.
I just created a new fund. It's called ETF of ETF of ETF of ETF of ETF ....
Is that 3^5 levered?
I once crashed a political fundraiser ($1000 per plate, chump change these days) and signed in as representing the National Caucus of Caucuses. Worked like a charm -- so I think you are on to something.
This is the time when ETF creation and (far less frequently) redemption takes place.
Legally, typically or consequently (as the result of regular stock buying/selling) ??
Is ETF creation/redemption an ongoing process throughout the day, does it get triggered when a net in/outflow reaches a certain level or does it depend on the particular ETF?
Does anyone know?
Do not forget a strong dollar is pulling money into America. In addition to manipulation by the government-financial complex other forces are converging to further distort and disconnect Wall Street from the American economy. Why American equities are rising is very important as we worked through a pre-election and post-election rally. We are experiencing a double down and let it ride mentality that has been ratcheted higher by media hype.
Most analysts agree that money from countries with weakening currencies is flowing out of the troubled areas and the U.S. is receiving most of the benefit. The Japanese as well as many Chinese and Europeans know with so much money floating around and few safe harbors America is becoming the most comfortable option for temporary investing their money. More on why this should be viewed as a sign of instability rather than a reason to celebrate in the article below.
http://brucewilds.blogspot.com/2014/11/why-american-equities-are-rising.html
Define "money". The trade gap does not agree with your statement. If real money was following in, real products would be flowing out. They are not.
This is correct, of course; and the reason it contributes to instability is so simple; we might as well just state it right now. this "flight capital", or "hot money" is always ready to move to the next table in the casino, so the more of it there is in a market the more instability is built in. for an example of this see the so called Asian Crisis of 1988; or whatever; around there. Way too much hot capital had flowed into Thailand; for instance; and when it started to reverse flow, it instantly became a self-fullfilling prrophecy and "vacuumed out" the economy of that country.
This is a good thing. ETFs have much lower fees than mutual funds, and most people should be buying an ETF instead of individual stocks. For whatever reason, people always want to buy penny stocks with no earnings and no dividends. They don't diversify at all, so their entire portfolio has maybe 3 stocks, and they don't use trailing stops, so they ride the crash all the way down to 0. Look how many people were destroyed when Enron collapsed. Why the hell did your portfolio only contain 1 or 2 stocks?
If anyone ever asks me what to buy, I'll say buy the S&P 500 ETF. Not right now, but when it goes on sale. If you had any idea how to pick stocks, you wouldn't be asking me what to buy.
I disagree. ETF's were created and marketed to the mass retail market; no one should buy an ETF. With regard to stock picking; well, what can you say. People delude themselves costantly about the prospects of some enterprise or another. But what can you do about it? ETF's increase the overall instability of the market and given the retail investor's uncanny ability to sell at the bottom and buy at the top; neither they nor the Stock Market in general can be reccommended. Some people who have some actual knowledge of the real world have owned major industrial stocks such as Ford, ABB, and Exxon-Mobile for decades and they're not complaining about anything. The main problem with most individuals is they become captured with a "story", an idee fixee that some stock or another "must" do very well; soon; almost always these people expect to make a lot of money this year; or next year; and it's not surprising that their "analysiis" turns out to fall victim to some un-foreseen event or another. Rather than buying t he S&P500 ETF you'd be much better to buy ES, the futures contract on the S&P500; as you say, when and if it goes on sale; but this only occurs rarely at wide intervals. The public has been trained to believe in buy and hold in the case of the stock market; they're not traders. Noting astonished me more than listening to people tell me how their stocks had lost half there value, or more, in 2009; why don't they get rid of them at the first sign of a downturn ? The stock market is really not appropriate for the average citizen; it has been merchandized to him, but it's not a good idea. Like any market it only benefits traders; the whole idea of buy and hold is crazy; and the merchandizing of it is based on carefully selected time intervals. By which deception, any market can be made to look good.
The Obongo recovery, parasite paper pushers and all around scumbags. Forward!
At one time buying a stock certificate, which is a share in a corporation, was the normal method of entering the stock market. It was under this regime that the buy and hold idea was merchanized to the public; just keep your retirement funds in the stock market and everyone will be rich. This only had one glaring flaw; the stock market gets ahead of itself and then overreacts to the downside;; well, two glaring flaws; after inflation became institutionalized in the US;, that was anot her glaring flaw. But the basic idea was that you were participating in the American Economy and your wealth would grow along with its growth; nevermind that this was very unlikely even when mass marketing and 401K;s and so forth made their entrance. But the psychology and the intent of an ETF is an entirely different thing. An ETF is a gambling instrument; it's a bet on a future oucome; the only intention is to sell it at a higher price; there never was any idea to buy and hold it; except in the most terminally retarded; who are actually few in number. So this preponderance of ETF's as determining factors in t he prices at which t he major indexs and their components sell, is a de-stabilizing factor. All markets are self-fulfilling prophecies; rising prices cause buyers to enter, and falling prices cause participants to sell out. But notice carefully that in the case of the ETF; there was never any underlying psychological support in the form of, ":we own a share in American Industry", and the corresponding belief that this industrial or corporate machinery would recover whatever had befallen it. The ETF is purely for trading; it can by no stretch of the imagination be called an investment. THEREFORE; I hereby declare that this stock market wee see before us today; is fundamentally more unstable and will have large and largely unpredictable price swings than t he stock market of thirty years ago. All hell can break loose at any tiime; and this will be surprising to the generals who are perfectly trained to fight the last war; to make an analogy. For people who have done well in the recent upwelling of stock market prices' this is an excellent time to take your profits. do not be deceived into thinking that some kind of "permanently high plateau of stock prices" has been achieved, as was anounced in the Newspaper in the late summer of 1929.