Investors have been increasing risk on hopes that inflation has peaked in America.
Investors dialled up their risk appetite in May, buying leveraged exchange-traded funds (ETFs) tracking the FTSE 100 and Nasdaq indices as stock markets flattened out after brutal selling in April.
The WisdomTree Nasdaq 100 3x Daily Leveraged ETF was a new entry in third place in the top 10 most-bought ETFs, as was the WisdomTree FTSE 100 3x Daily Leveraged ETF in eighth place. These leveraged ETFs use derivatives to amplify gains – and losses – by three times.
Investors should be careful here though, as although there are potential gains to be made, they could experience huge losses too. The promotional literature of many leveraged products specifies that they should not be held for more than one day, our article below explains why in more detail.
- The risks of holding leveraged ETFs for more than one day
- ETF jargon buster: everything you need to know
Another risk-on trade was taken by investors buying the Invesco EQQQ Nasdaq 100 Ucits ETF, which entered the most-bought list in May at number seven. It owns a who’s who of American technology stocks, from Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) to Airbnb (NASDAQ:ABNB) and NVIDIA (NASDAQ:NVDA).
Stock markets were broadly flat in May as inflation fell slightly in the US, prompting some investors to conclude that the worst of the price rises was over, and that a recession may now be the biggest risk to markets. Counterintuitively, a slowdown in growth may be good for stocks, as inflation pressures could ease further, and central banks may step in to stimulate the economy.
The top two ETFs switched places in May, with the Vanguard S&P 500 UCITS ETF (LSE:VUSD) (distributing) regaining the top spot and theiShares Core FTSE 100 ETF (LSE:ISF) falling to second place. Investors use these “core” ETFs to cheaply track the US and British stock markets. The Vanguard S&P 500 Ucits ETF (accumulating) was the ninth most-bought ETF.
The iShares Physical Gold ETC (LSE:IGLN) retained its fifth-place ranking. Investors typically own gold to hedge against rising inflation. The price of gold fell from around $1,900 an ounce to $1,830 during May.
Another new entry, in 10th place, was the iShares Oil & Gas Exploration & Production ETF (LSE:IOGP). It owns small oil and gas companies involved in drilling. Shares in the ETF have risen more than 50% this year and rose 13% last month as the oil price increased from $105 to $115 a barrel.
Dropping off the most-bought list were a host of UK market trackers: the Vanguard FTSE 250 Ucits ETF, the Vanguard FTSE 100 Ucits ETF, and the iShares UK Dividend Ucits ETF. As investors embraced more risk, they ditched cheaper UK shares valued for their dividends in favour of faster-growing American stocks.
Top 10 most-popular ETFs May 2022
|Position||ETF||Change from April||One-year performance to 31 May 2022 (%)||Three-year performance to 31 May 2022 (%)|
|1||Vanguard S&P 500 Ucits ETF (distributing)||Up one||12.2||56.5|
|2||iShares Core FTSE 100 Ucits ETF||Down one||11.9||17.8|
|3||WisdomTree Nasdaq 100 3x Daily Leveraged ETF||New entry||-26.2||167.1|
|4||Vanguard FTSE All-World Ucits ETF||Up three||5.1||39.3|
|5||iShares Physical Gold ETC||No change||9.2||12.1|
|6||iShares Core MSCI World Ucits ETF||No change||7.4||43.8|
|7||Invesco EQQQ Nasdaq 100 Ucits ETF||New entry||4.5||79.6|
|8||WisdomTree FTSE 100 3x Daily Leveraged||New entry||28.5||1.5|
|9||Vanguard S&P 500 Ucits ETF (accumulating)||Up one||12.2||56.5|
|10||iShares Oil & Gas Exploration and Production Ucits ETF||New entry||103.2||79.9|
Performance figures: FE fundinfo. Note: the top 10 is based on the number of “buys” during the month of May.
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