Japanese retail investors pull out of popular bear fund

TOKYO: Japanese retail investors are pulling out of a popular bear market fund as a rally in the benchmark Nikkei index to 26-year highs prompts many market participants to ditch their contrarian strategies.

The fund is designed to pay investors two times the opposite of the Nikkei benchmark index’s daily return, by making short positions in Nikkei futures. So if the Nikkei falls 1%, the inverse ETF rises 2% and if the Nikkei rises 2%, the inverse ETF falls 4%.

The net asset value of Nomura’s Next Funds Nikkei 225 Double Inverse Index ETF, dropped almost 24% to 150.1 billion yen (US$1.37bil) last week from a record peak of 196.3 billion yen set on Oct 31.

That drop was a major shift from the pattern until late last year. Whenever the Nikkei had risen, investors had increased buying in the inverse ETF, whose value rises when the Nikkei falls. The bear fund was very popular with individual Japanese speculators.

That trend appears to have changed on Nov 9, when foreign investors poured in money to buy Japanese stocks on the back of strong earnings out of Japan Inc. firms, pushing the Nikkei average above 23,000 for the first time since 1992.

“Those retail investors who had bought the double inverse ETF since September made a lot of losses in November, when stocks rose even higher,” said Tomoichiro Kubota, senior market analyst at Matsui Securities.

Since then, they have become very cautious about taking short positions, Kubota said, noting that margin selling of individual shares, another way to bet on a decline in stock prices, has not increased either. — Reuters