Leveraged ETFs Added to Stock Chaos With $15.5 Billion Selling
- Nomura’s McElligott says fund rebalancing compounded selloff
- Research shows these complex products amplify intraday moves
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In Tuesday’s tumultuous trading session was a pattern market watchers have seen time and again this year: A bad day for stocks gets worse, right around the close. Suspicion is growing that a breed of complex but increasingly popular ETF may be helping fuel the trend.
With the main equity gauges all down heavily on the day, leveraged exchange-traded funds -- which use options to amplify returns, usually of major indexes -- added around $15.5 billion of selling pressure to the rout, according to estimates from Nomura Holdings Inc. It’s likely a big reason why stocks took another dip in the last 30 minutes to close out a particular brutal trading session.