China Doing What Greece Didn’t As Traders Give Up On Europe ETFs
By Camila Russo
All through the equity plunge that culminated in a bloodbath on Monday, exchange-traded funds tracking European equities held on to investments. That might be changing now.
The WisdomTree Europe Hedged Equity Fund and Vanguard FTSE Europe ETF both had their first withdrawals in months. Investors are capitulating as they start to question their bets that Europe?s stocks would rally with an economic recovery, according to Nicola Marinelli of Pentalpha Capital Ltd.
?It?s the sudden realization that assumptions about the global economy were too optimistic,? said Marinelli, a fund manager who helps oversee 114 million euros ($130 million) of assets at Pentalpha in London. ?Advisers were all suggesting to stay long equity, to stay long European stocks. The real big step down has been happening recently, so it?s not surprising ETFs took a week or two to adjust.?
The WisdomTree ETF, which tracks European stocks while hedging against euro fluctuations, saw a record amount of money pouring in in the first quarter as optimism grew the European Central Bank?s quantitative easing would propel the economy. Investors took out $108 million from the ETF on Tuesday, the most ever and the first withdrawal since May. The Vanguard fund had outflows of $127 million, its first since January.
Turmoil in Greece earlier this year did nothing to abate the flow into these funds, and until Tuesday, neither did concerns about China?s slowdown or the Federal Reserve?s impending rate increase. They kept getting money even as the Stoxx Europe 600 Index plunged 14 percent in the two weeks following China?s currency devaluation. The move rippled through markets, erasing $2.7 trillion of equity value on Monday alone.
The Stoxx 600 advanced 2.9 percent at 10:01 a.m. in London.