Bearish Europe ETF Shines, But Where's The Love?

August was a dismal month for stocks the world over and that certainly includes European equities. Sliding commodities prices, a suddenly buoyant euro and a spate of China-related woes were among the issues that dragged the Stoxx Europe 600 Index to an August performance that was its worst monthly showing in four years.

And for bad measure, the Stoxx Europe 600 Index slid another 2.7 percent Tuesday. Predictably, Europe exchange traded funds trading in New York are responding in kind. Over the past month, the Vanguard FTSE Europe ETF VGK and the iShares Europe ETF IEV have both posted losses in excess of nine percent.

Tumbling European stocks and ETFs have not been enough to motivate investors to rush to the ProShares UltraShort FTSE Europe ETF EPV, an ETF that is proving to be a prime beneficiary of sliding European stocks. EPV attempts to deliver double the daily inverse performance of the FTSE Developed Europe Index, the underlying benchmark tracked by the aforementioned Vanguard FTSE Europe ETF. 

Bolstering the case for EPV in the near-term is the vulnerability of the single-country ETFs tracking the FTSE Developed Europe Index's largest country weights. The index devotes nearly 61 percent of its combined weight to the U.K., France and Switzerland and the corresponding single-country ETFs for those nations reside an average of less than 5.3 percent off their 52-week lows, but all three are at least 10 removed from their 52-week highs. 

Those factors have not been enough to motivate traders to get involved with EPV in earnest. Last month, traders allocated less than $1.8 million to EPV while pouring almost $758 million into VGK. Let that sink in for a minute. EPV is up 20.3 percent over the past month, a performance that is actually better than double VGK's loss over the same span, but market participants are clearly getting burned by the Vanguard fund while reaping what amounts to no rewards with EPV.

Perhaps the best thing that can be said of traders' treatment of EPV is at least they are not flocking to the ETF's bullish equivalents. Last month, the Direxion Daily FTSE Europe 3x Bull Shares EURL and the ProShares Ultra FTSE Europe ETF UPV lost a combined $7.2 million. UPV, the double-leveraged bullish play on the FTSE Developed Europe Index, is down 18 percent over the past mont.