U.S ETFs Under Pressure As Saudi Arabia Trims ETF Holdings

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U.S stocks and ETFs are under pressure despite starting the week on a roll on the confirmation of a Moderna coronavirus vaccine that is 95% effective. A fall in drug store stocks and lackluster economic data, owing to the COVID-19 disruptions, is taking a toll on sentiments in the ETF marketplace.

ETF-Stocks Sell-off

Major stock ETFs remain under pressure, with the SPDR Dow Jones Industrial Average ETF and the Invesco (QQQ) Trust ETF dropping a day after the Moderna announcement. Fuelling the weakness is the confirmation that U.S retail sales for October increased by 0.3% against 0.5% expected.

The slow growth underscores weakness in the U.S economy as the country faces a vicious wave of the COVID-19 pandemic. The ETF market weakness comes just days after major indices raced to record highs on the COVID vaccine announcement.

According to Chris Larkin, managing director of trading and investment at E-Trade, it is natural for the overall market to pull back and take a breath after powering to record highs. Likewise, disappointing retail sales was the much-needed catalyst to fuel a pullback.

Tesla ETFs

Amid the pullback, investors’ focus is increasingly shifting to ETFs that provide exposure to the Tesla stock. The S&P 500 announcing that it will add the electric car company to the index, starting December, has all but aroused investor interest.

Faced by extreme volatility levels, investors are increasingly turning to ETF to gain exposure to the blockbuster EV giant. While NASDAQ 100ETF QQQ is the only major index ETF to offer exposure to Tesla stock, a number of ETFs are expected to add the stock.

The iShares Consumer Goods ETF (IYK), the SPDR S&P NYSE Technology ETF (XNTK) are some of the ETFs with a large allocation to Tesla stock. The ARK Innovation ETF (ARKK) also has a high allocation. Investor’s rushing to get a piece of the Tesla stock does not come as a surprise. The stock has been on an impressive run in 2020 on reporting a fifth consecutive quarter of profits.

Saudi Arabia U.S ETF Sell-Off

Separately, Saudi Arabia’s sovereign wealth fund is increasingly trimming its exposure to North American funds. Immediate reports indicate that the fund cut its exposure by $3 billion in the third quarter. The cut came on the fund offloading a number of exchange-traded funds and stocks, including the Berkshire Hathaway.

Regulatory filings indicate the Public Investment Fund held $7.05 billion worth of U.S equities as of September 30, 2020, down from $10.12 billion in the second quarter. It has since emerged that the sovereign fund cut its exposure to U.S ETFs to $1.96 billion compared to $4.7 billion as of the second quarter.

The sovereign fund had taken advantage of weakness in the market, doubling down investments in companies. In the last quarter, part of the investments was shipped into ETFs of real estate as well as the materials and utilities sector. Some of the stocks that PIF has offloaded include Berkshire Hathaway, Cisco and Canadian Natural Resources.


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