Bullish Trump trade sees rotation from US shorts into leveraged long ETFs

A sharp reversal away from short US equity exchange-traded funds and toward leverage long positions characterised January trading as investors position themselves for Donald Trump’s pro-US growth policies to grip, according WisdomTree.

The ETF provider says in December investors were buying short ETFs tracking US indices while redeeming their long positions.

Flows into leveraged long US equities were almost $54m (£43.4m) in January with $4.6m reported outflows from short positions.

By comparison, December saw $40m outflows from long positions and inflows of $14.6m into shorts in November and December since Trump’s victory was confirmed.

WisdomTree research analyst Nick Leung says there is a still a lot of uncertainty surrounding Trump’s plans.

Yet he says: “Short and leveraged investors continued to position bullishly around Trump and US equities, with expectations hinging around Trump offering more details on proposed corporate tax cuts, infrastructure spending and regulation reform.

“All of which would provide another shot in the arm for US equities.”

Trades in US equities in January were made against a rising S&P 500 index that was up 2 per cent over the month.

Meanwhile investors also switched views on the outlook for oil and natural gas.

Investors broadly avoided both commodities in December as $69m was redeemed from long positions in US Crude oil, alongside withdrawals in Brent and natural gas.

But sentiment turned in January as $27m invested in leveraged long oil products, and a further $26m invested in natural gas.

Short positions were also unwound across both commodities, with Leung saying this was a sign of contrarian positioning in commodity markets.