TRS data for the Vanguard Value Fund (VTV) show expectations for more market declines this quarter

Changes in Total Return Swaps (TRS) exposure show that institutional funds are expecting major market indices around to world to fall in Q4 2022. Never mind this week’s rally – look to the coming months to show the depths of the bear market.

According to data published by the DTCC’s Global Trade Repository and cleaned by Finadium, the biggest mover of the week was the Vanguard Value ETF (VTV) with new position exposure of $289 million. The iShares Russell Top 200 ETF (IWL) and iShares MSCI Emerging Markets Small-Cap ETF (EEMS) funds also saw relative changes but much smaller in absolute value: $991,000 for IWL and $275,000 for EEMS.

Tech exposure is a common factor in these index trackers: about 40% of the Vanguard fund’s holdings are in the Technology and Financial Services sectors, about 20% each. Similarly, the technology sector accounts for approximately 16% of holdings in iShares MSCI Emerging Markets Small-Cap ETF, and about 42% of iShares Russell Top 200 ETF’s holdings are in the Technology (26%) and Healthcare (16%) sectors.

In the securities lending market, IWL and EEMS could be considered hard to borrow, with utilization rates of 70% and 31%, respectively. But it doesn’t seem like anyone is much interested in our big mover VTV – utilization is in the single digits. The VTV story is similar to what we saw with DLR a few months ago, and that turned into a major win for participating hedge funds. Options data support the idea that the new VTV exposure is on the short side: 81% of options value is in puts compared to 19% in calls.

Institutional funds and their prime brokers can see the securities lending utilization of what might be obvious short activities and use that information to move into adjacent products with less demand.

Another security to watch is Akero Therapeutics (AKRO), which has seen its stock price triple since early September. TRS volumes spiked last week with a bias towards the short side. It’s possibly time for this high flier to fall back down.

Interested in TRS data? Get access to the cleaned dataset here.

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