Investors Threw $5 Billion at S&P 500 ETF in Wednesday's Rally

  • Fund flows reversed as S&P 500 rebounded from correction
  • Hedge funds turned neutral after being short U.S. equities

Sensing a floor in equities or at least a bounce, clients of exchange-traded funds poured more than $5 billion into the largest stock ETF Wednesday, a sum equal to all the money they pulled out as shares plunged the previous week.

The SPDR S&P 500 ETF Trust, also known as Spyders, halted two days of outflows as the Standard & Poor’s 500 Index staged its biggest rally since 2011, data compiled by Bloomberg show. While the deposits represent a small percentage of its $164 billion in assets, that’s the fund’s biggest inflows since December.

Users of ETFs have acted with uncommon prescience in recent days, pulling $10 billion from the market in stages from Friday through Tuesday, a period in which the S&P 500 slumped 8.3 percent. Data from Evercore ISI showed hedge funds increased bullish positions in U.S. equities during the rout.

“It’s kind of like going ankle deep back in the water again,” said Peter Tuz, who helps manage more than $430 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia. “It’s the fear of missing out on a potential rally. It’s tentative, I wouldn’t call it a resounding conviction.”

After the six-day plunge that was the steepest in four years, U.S. stocks advanced Wednesday, with gains picking up momentum in the final hour amid dovish words from the Federal Reserve and improving economic data. The S&P 500 rose for a second day Thursday, rising 2.1 percent at 12:06 p.m. in New York, after data showed the economy grew more than previously estimated.

For a day, anyway, money poured in as the market showed signs of stabilization from a week-long rout that erased more than $2.2 trillion from U.S. equity values. The SPDR S&P 500 ETF experienced withdrawals in four of the last seven months and outflows reached $5.1 billion in August before Wednesday.

Hedge fund managers, who had increased bearish bets in recent months amid Greece’s debt debacle and an upheaval in China, turned marginally more optimistic. The Evercore ISI index of hedge fund long versus short positions rose to 50.1 in the week ending Wednesday, up from 49.9 the previous period, data from the New York-based research firm show.

The survey, based on 31 hedge funds with about $86 billion under management, tracks investments on a zero through 100 scale. Readings of zero show “maximum” short selling, or the sale of borrowed equities with the hope of profiting by buying them at lower prices later; 100 means “maximum” bullish bets.

The index has dipped below 50 only three times in the past year.

“Hedge funds have been sensitive to the levels of the market,” Joseph Veranth, chief investment officer at Dana Investment Advisors in Brookfield, Wisconsin, said by phone. The firm manages $6.2 billion. “I’m sure there was cash available on the sideline or the ability to somewhat reverse a partial short. As a whole, they took this correction as the buying opportunity.”

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