Hedge Funds Are Crowding Into These 10 ETFs So Far in 2023

Exchange-traded funds from issuer Direxion currently dominate the Fintel Fund Sentiment Leaderboard as hedge fund managers and institutions see equities markets in unchartered waters amid banking industry uncertainty and central bank efforts to cool inflation.

The Leaderboard uses an advanced quantitative model to find stocks that are being most accumulated by funds. The proprietary model uses a number of factors, including the increase in the number of disclosed owners and the changes in average allocation across disclosed owners.

Institutional investors are using ETFs as they seek to generate returns without taking on excessive concentration risk. Sector ETFs allow for thematic trades without picking individual stocks.

The current list tells us that institutions have been buying into the recent banking weakness that has seen small/mid-cap banking stocks sell-off significantly in the last week. The funds have also been buying into retail and tech sectors while shorting the semiconductor sector.

At number 10 on the leaderboard is Direxion Daily Mid Cap Bull 3X Shares (US:MIDU) with a fund sentiment score of 98.70. The number of institutional owners of the ETF has increased to 17 from 10 during the quarter. The average portfolio allocation has grown to 0.26%. The leveraged mid cap ETF is down around 45% over the last year with the share price trading around 12-month lows.

The ProShares Short Bitcoin Strategy ETF (US:BITI) is ninth on the list, with a sentiment score of 98.89. Five new institutions purchased the ETF during the quarter, bringing the total to 18 with an average portfolio allocation of 1.20%. This ETF aims to trade at a 1x inverse relationship relative to the S&P CME Bitcoin Futures index. The gauge is down around 44.5% since launching in June last year as Bitcoin prices have recovered some losses in 2023.

Another Direxion fund, the Direxion Daily Semiconductor Bear 3X Shares ETF (US:SOXS) has the next highest score of 98.89. The number of institutions has grown by 37.5% to 33 from 24 during the quarter. The average portfolio allocation has grown significantly. to 2.98%, which is almost the largest allocation on the leaderboard.

The inverse semiconductor sector ETF is down 50.7% over the last 12 months, after being up more than 100% as of October. Many institutions are playing the theme of an unwinding of the tight chip shortage that was felt throughout the pandemic.

Putnam Focused Large Cap Value ETF (US:PVAL) has the seventh-highest score, at 98.94. The number of institutions holding the ETF has grown to 19 from 11 during the quarter with an average portfolio allocation of 0.51%. The large cap-focused exchange-traded fund has traded relatively flat over the last year with mega caps usually trading on lower PE ratios with healthier free cash flows from established businesses.

Direxion Daily Aerospace & Defense Bull 3X Shares (US:DFEN) is at number six on the list, with a 98.96 sentiment score. The number of owners on the register has grown by 47.37% to 28 during the quarter. The holders have an average portfolio allocation of 0.82%. The DFEN ETF is down 17.7% over the last year but poses strong secular tailwinds amid increased defense spending by countries in the wake of the Ukraine war.

Direxion Daily Regional Banks Bull 3X Shares (US:DPST) ETF has the fifth-highest fund sentiment score of 98.99. The number of owners on the register has grown to 27 from 19 during the quarter. with an average portfolio allocation of 1.40%. The DPST ETF is down a whopping 84% over the last year and has fallen 70% in March alone. Funds are crowding into the ETF with the hopes of a recovery from the sharp correction that recently occurred in the banking sector.

First Trust Switzerland AlphaDEX Fund (US:FSZis at number four on the list, with a score of 99.01. The number of institutions on the register has grown by 47.37% to 28. The average portfolio allocation from holders is 1.36%. The Swiss equities focused ETF is down 11.7% over the last year but has recovered 26% from 2022’s lows reached last October.

The Direxion Daily Retail Bull 3X Shares (US:RETL) ETF is third on the list with a fund sentiment score of 99.22. The number of institutions on the register has grown to 15 from 10 during the quarter with an average portfolio allocation of 0.87%. The retail sector-focused ETF is down 69.5% over the last year. The ETF has seen several recovery attempts with the most recent 80% climb in January before gains were quickly wiped out with the broader market sell-off.

At the number two spot is Direxion Daily Dow Jones Internet Bull 3X Shares (US:WEBL) with a score of 99.31. The number of owners has grown to 19 from 12, with an average portfolio allocation of 0.97%. The WEBL ETF is down 74.4% over the last 12 months as high price-to-earnings technology stocks were punished for minimal cash flows and frothy valuations.

Topping the leaderboard is Fidelity MSCI Financials Index ETF (US:FNCL) with the highest fund sentiment score of 99.40. Institutions are crowding into the ETF with the number of owners more than tripling to 531 from 176. The average portfolio allocation also increased by 330% to 0.82%.

The FNCL ETF is down around 21% on a one-year view fuelled by the most recent banks sell-off last week. The ETF lost 15% of its value in March, erasing most of the recovery gains from the previous quarter. This and other regional banking ETFs present significant upside if the banking landscape becomes less volatile. However, with uncertain times ahead, it is hard to pick the bottom.

This article originally appeared on Fintel

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