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Nov 6, 2020

Triple-leveraged tech ETF saw record outflows during stock rally

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During this week’s massive technology rally, a US$9.8 billion triple-leveraged ETF tracking the Nasdaq 100 suffered its biggest-ever exodus.

Traders yanked about US$476 million from the ProShares UltraPro QQQ ETF (TQQQ) in the latest session for which Bloomberg has data, even with the exchange-traded fund heading toward its best week since April. Meanwhile, the US$1.5 billion ProShares UltraPro Short QQQ ETF (SQQQ) -- which seeks results that correspond to three times the inverse performance of the Nasdaq 100 -- took in the most cash on record.

Those flows seem counterintuitive given that investors are assessing the reduced odds of a large stimulus package and a resurgence of Covid-19 cases that could lead to tougher restrictions. But after such a big rally in tech, some analysts point to concern about high valuations and disappointing earnings that could cause some profit taking for the industry that has powered this year’s gains.

“Such a breakneck speed was unsustainable,” said James Pillow, managing director at Moors & Cabot Inc. “It was, after all, the fastest post-election jump ever, so taking some risk off the table was just smart trading.”