Record ETF flows in QQQ tracking Nasdaq 100

Equities 5 minutes to read

Peter Garnry

Head of Equity Strategy

Summary:  Yesterday's impressive rebound in US technology stocks were backed up by record inflow into the QQQ ETF tracking the Nasdaq 100 Index. In today's equity note we take a look at what that means for the direction and bullishness of the US technology stocks.


Monday’s sell-off in Nasdaq 100 was accompanied by the largest outflow observed on record ($3.48bn) in the Invesco QQQ Trust Series 1 ETF (QQQ:xnas) tracking Nasdaq 100 the leading US technology index. Yesterday, the price action ended being positive as the Nasdaq 100 showed a remarkable comeback despite a horrible session across USD, gold, silver, and European equities. The inflow into the QQQ ETF was record $4.16bn. Overall, the rebound which started in Nasdaq 100 yesterday seem to be key to more positive equity markets today. The record flows in the QQQ ETF are an indicating of widespread speculation in US technology stocks and that this is increasingly becoming the leading index for sentiment during the trading session.

Source: Saxo Group
Source: Bloomberg

The in- and outflow of an ETF is a function of daily liquidity issues in the ETF as described in this BlackRock whitepaper. If excessive selling pressure pushes down the ETF price below the underlying net asset value (NAV) then the authorized participant (AP), which is the only one that can engage with the ETF sponsor (BlackRock, Vanguard etc.), can acquire the ETF shares and redeem them with the ETF sponsor and gain the spread between the NAV of those ETF basket shares and the ETF price. This mechanism creates an outflow of outstanding ETF shares. The reverse dynamic happens if the QQQ share price is pushed above the underlying basket NAV. The AP can then buy the underlying shares in the ETF basket and give them to the ETF sponsor in return for ETFs that they can then sell at a gain in the secondary market. It is important to understand that the ETF flows are a function of intraday supply/demand dynamics in the ETF to ensure equilibrium.

What informational value is there in ETF flows? Can they predict returns? On average ETF flows do not seem to create an edge in the market, which makes sense, and as such they do not statistically predict next day’s return. However, there seems to be a small link between large ETF shocks and subsequent daily returns, but these observations are still hard to isolate and validate. What we can say is that intraday demand was very high in QQQ yesterday indicating that current levels are attracting strong bids and that it probability skews probability in favour of support in US technology stocks at current levels and likely a rebound. The next couple of trading days will show whether this thesis is right.

Source: Saxo Group
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.