LONDON The British pound's slide to a 31-year low against the dollar on Friday came as one gauge of market sentiment showed that some investors were actually more positive on the currency's outlook than they have been for years.
The value of assets managed by exchange-traded funds that allow investors to bet on a weaker pound fell to a 2 1/2-year low on Friday, continuing a trend that began just after Britain's June 23 vote to leave the European Union.
Similarly, the value of assets held in ETFs allowing investors to go "long" the pound, or bet on its strengthening, rose to the highest in almost four years, figures provided by ETF Securities on Monday showed.
Graphic: Long/short sterling ETFs: reut.rs/2e8eBtC
That contrasts with the currency market at large, which has taken fright at what Brexit might mean for the British economy. Sterling fell below $1.20 in increasingly volatile trade last week, and speculators on Chicago futures markets have amassed record bets against the pound.
"We are witnessing a clear contrarian trading behaviour," said James Butterfill, head of research and investment strategy at ETF Securities. "It seems a lot of (ETF) investors are of the view that sterling has bottomed or hovering near the bottom and a 'hard Brexit' is already priced in."
Total assets held by ETFs allowing investors to "short" or sell the pound fell to $51.1 million on Friday, down from $280 million on June 23 and the lowest since March 2014.
The assets in "long" sterling ETFs were worth $39 million, the highest since November 2012, according to ETF Securities, which says it has a 99 percent share in the European foreign exchange ETF market.
ETFs are popular among retail investors who otherwise find it expensive to short currencies or take part in complex trades that often require derivatives and leverage.
ETF Securities' currency exchange-traded products are based on Morgan Stanley's foreign exchange indices, and use forward contracts and swaps to replicate the performance of the underlying index.
These sums are relatively tiny, however, compared with the value of currency futures contracts traded on the Chicago Mercantile Exchange.
Data published on Friday showed that speculators such as hedge funds increased their net short sterling positions on the CME to a record 97,572 contracts in the week to October 4. That's worth around $8 billion.
Those positions don't capture the selling early on Friday morning in Asia, when the pound plunged as low as $1.1491 before recovering. On Monday, it was changing hands around $1.24.
(Reporting by Atul Prakash and Jamie McGeever; Graphic by Vikram Subhedar; Editing by Larry King)