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Jul 9, 2020

Triple-leveraged tech ETF has exodus after 200% surge from lows

Toronto downtown TSX King St.

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A triple-leveraged ETF that tracks some of the world’s biggest technology companies is poised for its worst week of outflows in a decade after soaring more than 200 per cent from its March low.

The US$6.8 billion ProShares UltraPro QQQ, which seeks investment results that correspond to three times the daily performance of the Nasdaq-100 Index, has already lost almost US$500 million in the span, according to data compiled by Bloomberg.

That puts the exchange-traded fund on pace for its largest weekly withdrawals since TQQQ started trading in February 2010.

The megacap tech trade has ruled stocks for months, with investors piling into companies with rock-solid balance sheets and that benefit from the stay-at-home economy.

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The Nasdaq 100, including Microsoft, Apple, and Alphabet, is headed for an annual gain that ranks with its best of the last two decades, raising some concern whether the big-tech rally can continue.

“The outflows here look like classic profit-taking from an ETF that has been in money printing machine mode for about three months straight,” said Eric Balchunas, an ETF analyst for Bloomberg Intelligence. “These traders know not to push their luck, which is the key to not losing your shirt with exotic ETFs.”

The outflows may not persist, though. With more states slowing or reversing reopening measures, demand for the companies that can withstand another economic setback has been rising again. As of Thursday afternoon, the Nasdaq 100 was outperforming the other major equity benchmarks.