JPM notes CTA moderate long positions in global equities

JPMorgan's Delta One desk reported that CTAs are largely long global equities, while overall ETF flows last week showed below-average inflows into equities ($6.2B) and commodities ($0.2B), but strong inflows into fixed income ($10.9B) and currency/multi-asset funds ($3.3B); a significant Blackrock model portfolio rebalance drove international equity inflows and thematic ETF purchases, while leveraged ETFs saw their largest outflows in four months, and cryptocurrency ETFs experienced their second-strongest weekly inflows year-to-date at $3.2B.

Analysis

JPMorgan's Delta One Desk reports Commodity Trading Advisors (CTAs) are maintaining moderately long positions in most global equity markets, despite equity ETFs seeing below-average inflows of $6.2 billion last week. This contrasts with substantial inflows into fixed income funds ($10.9 billion) and currency/multi-asset funds ($3.3 billion), while commodities experienced only marginal inflows ($0.2 billion). A significant Blackrock model portfolio rebalance notably influenced market flows, contributing to a resumption of the shift from U.S. to international investments; U.S. equity ETFs recorded weak inflows of $1.0 billion, whereas international developed markets saw robust inflows, specifically through the sale of S&P 500 ETF IVV and purchase of EAFE value ETF EFV. This rebalance also drove thematic ETFs to their largest inflows in four years at $5.2 billion, benefiting funds like THRO and BAI. Conversely, dividend, low volatility, and growth funds registered outflows. Leveraged ETFs, including TQQQ, NVDL, and TSLL, experienced their largest weekly outflows in four months; TSLL, for instance, exhibits high volatility with a 93.63% one-year return but a -25.72% decline in the last six months. Sector-wise, technology, discretionary, and healthcare saw outflows, while communication services, energy, and industrials attracted capital. The rebalance also spurred significant purchases in international (IAGG) and inflation bond ETFs (STIP), alongside strong inflows into long-term U.S. Treasury ETFs like TLT and TLH. Cryptocurrency ETFs, such as IBIT, recorded their second-strongest weekly inflows year-to-date at $3.2 billion. Futures markets saw large net buying in VIX, FTSE 100, JSE Top 40, U.S. natural gas, and corn, but substantial net selling in KOSPI 200 equities and Korean 10-year rates. CTAs' rates positioning is neutral to long on the front end and short on the long end in U.S. and EMEA, while their commodity stance is generally long, excluding a net short in energy and mixed exposures in agricultural and base metals. Asset managers increased Nasdaq (NDX) longs and reduced U.S. Treasury longs, while leveraged funds trimmed U.S. Treasury shorts but increased shorts in the Ultra bond contract. Managed money significantly cut wheat shorts and reduced soybean longs.

Key Decisions for Investors

• Investors should note the significant shift towards international equities, driven by large institutional rebalancing, and consider re-evaluating their geographic allocations, potentially favoring EAFE value (EFV) over broad U.S. indices (IVV).
• Given the substantial inflows into fixed income (TLT, TLH, IAGG, STIP) and outflows from leveraged equity products (TQQQ, NVDL, TSLL), a cautious approach towards highly volatile, leveraged positions is warranted, while opportunities in bond markets, including inflation-protected and long-duration government debt, may be attractive.
• Monitor CTA positioning, which remains moderately long global equities but shows nuanced views on rates (short long-end U.S./EMEA) and commodities (short energy), alongside strong inflows into cryptocurrency ETFs (IBIT), suggesting diverse return-seeking and hedging activities across asset classes.