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Every market offers opportunity. For many investors, 2022’s bear market offered the chance to buy securities at a low cost with the hope of making extra profits once the market recovers.
This strategy, often referred to as “buying the dip,” was the main engine behind many of the years’ stock rallies.
Now, according to a Bloomberg analyst, “buying the dip” is dead, at least when it concerns equity ETFs.
Yet Kaiju ETF Advisors disagrees. The firm launched the BTD Capital Fund (NYSE:DIP) this week, an ETF that looks to buy the dip on individual stocks regardless of market conditions.
Related: What Is An ETF?
Bloomberg Intelligence ETF analyst Athanasios Psarofagis said that recent data points to the end of a widespread buy-the-dip strategy among equity investors.
“ETF investors have stopped chasing the worst-performing equity strategies, hinting at an end to the 'buy the dip' approach that fueled rallies through much of 2022.”
Psarofagis sees the trend confirmed in two data points: a drop in media mentions for buying the dip and increased trading for inverse ETFs.
Inverse ETFs use derivatives — like future contracts and options — to profit from a drop in the value of an asset or index. Increased trading for inverse ETFs means that more investors than before are expecting indexes to continue on a downward path.
Flows in the equity ETF sector speak for themselves. Psarofagis says that this year, the worst-performing 10% of equity ETFs have outflows exceeding $11 billion, while the top-performing 20% have taken inflows of $140 billion combined.
An increased number of investors in the equity ETF space are no longer expecting poorly performing ETFs to jump back to life anytime soon.
Bond ETFs, however, show the opposite trend. The 10% poorest-performing bond ETFs have added $22 billion this year.
Kaiju ETF Advisors still expects the buy-the-dip strategy to deliver value. This week, the firm launched the BTD Capital Fund, an actively managed ETF that uses big data and artificial intelligence to identify and buy dips.
Instead of following an index or sector, the ETF “identifies dips, initiates buys, and then instructs when to sell rebounded shares in short order — replacing a significant portion of the ETF's holdings every day,” according to a press release.
The ETF’s underlying AI software seeks to optimize trading decisions for short-term gain and is touted to work under all market conditions.
That means that the ETF’s performance is not tied to the overall market, as the software tries to find “true dips” in individual stocks.
"What we've built takes this type of systematic trading to a new level because its goal is to identify those needle-in-a-haystack opportunities by parsing data at a rate that exceeds human ability," Kaiju CEO Ryan Pannell said.
Shutterstock image.
Posted In: DIP
