Traders Tempt Fate With This Emerging Markets ETF

Emerging markets assets are struggling this year, a fact confirmed by a year-to-date loss of more than 9 percent for the widely followed MSCI Emerging Markets Index.

Negative anecdotes for emerging markets assets do not end there. Exchange-traded funds tracking developing economies are besieged by outflows. For example, the largest ETF targeting the MSCI Emerging Markets Index has bled $5.12 billion in assets this year, a total surpassed by just three other US-listed ETFs.

What Happened

A frequent rallying cry of emerging markets bulls when the asset class sags is that developing world equities are inexpensive relative to domestic stocks. That is currently the case, but the discounts are not stark and are not proving to be enough to stoke interest among investors.

Still, some data points indicate short-term traders are nibbling at bullish positions in developing economies. That includes recent flows to the Direxion Daily MSCI Emerging Markets Bull 3X Shares (NYSE: EDC). EDC attempts to deliver triple the daily returns of the MSCI Emerging Markets Index.

Why It's Important

Predictably, EDC is enduring punishment as emerging markets stocks slide. Proving that leveraged ETFs should not be held for extended time frames, EDC's year-to-date loss is more than three and a half times that of the MSCI Emerging Markets Index. Data suggest traders are betting that situation will soon reverse.

For the 30 days ended Sept. 24, EDC averaged daily inflows north of $645,000, according to Direxion data. That is good for one of the best inflows tallies among Direxion's leveraged bullish emerging markets ETFs over that period.

What's Next

Data not only confirm traders' affinity for EDC, but that that preference is well ahead of that of the Direxion Daily MSCI Emerging Markets Bear 3X Shares (NYSE: EDZ). EDZ, EDC's bearish counterpart, attempts to deliver triple the daily inverse returns of the MSCI Emerging Markets Index.

Traders pulled an average of nearly $271,500 per day from the bearish EDZ over the past month, according to issuer data.

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