We track over 2.500 U.S. traded ETFs with an aggregate short interest of $191.1 billion. For the greater part of the last month we saw ETF short covering with $2.6 billion of total net short covering over the last 30 days. But recently we have seen an about face in ETF short selling with $5.9 billion of net short selling over the last 7 days.
Overall, the top three most shorted ETFs continue to be the primary portfolio hedging vehicles Spider S&P 500 ETF (SPY), iShares Russell 2000 ETF( IWM) and Invesco Nasdaq QQQ Trust ETF (QQQ). Biotech & healthcare ETFs continue to be large shorts with the Spider S&P Biotech ETF (XBI), iShares Nasdaq Biotech ETF (IBB) and Spider healthcare ETF (XLV) also in the top twenty.
Short selling in fixed income ETFs continues to be strong, even with the specter of the Fed purchasing ETFs in future rounds of easing if the market or economy faulters. There are four fixed income ETFs in the top twenty most shorted ETFs: the iShares iBoxx High Yield Corporate Bond ETF (HYG), iShares iBoxx Investment Grade Corporate Bond ETF (LQD), iShares 20+ Year Treasury Bond ETF (TLT) and iShares 7-10 Year treasury Bond ETF (IEF). In fact, there are fourteen fixed income ETFs in the top 100 most shorted ETFs compared to just eight in January.
Over the last week, we’ve have seen several trends in the short side of ETF trading. When looking at the big three portfolio hedging vehicles SPY, IWM and QQQ we are seeing increased short selling using the SPY ETF with partially offsetting buy-to-covers in IWM and QQQ. Short sellers have added $1.6 billion of new short positions in SPY while buying-to-cover $841 million of IWM and QQQ. This action implies investor’s belief that there will be near term underperformance in the core S&P 500 names (up +5% YTD) while tech will continue its momentum march (up +26% YTD) and the broader market that has lagged behind (down -7% YTD) will begin catching up to the rest of the market.
A second trend is a marked increase in fixed income short selling, with five out of the top ten most shorted ETFs over the last week being Bond ETFs. New short selling over the last week increased short interest in these five ETFs by 10%. Bond ETF short sellers may be thinking that the yield curve has bottomed out in the short term and may be trending higher causing the prices of the ETFs bond holdings to decline.
Our third trend is short covering in Gold related ETFs over the last week. The VanEck Vector Gold Mining ETF (GDX), iShares Gold Trust ETF (IAU) and Spider Gold Trust ETF (GLD) all landed in the top ten most short covered ETFs league table over the last week with $160 million worth of new buy-to-covers. Gold’s +28% move for the year and hitting its year to date high in early August may be squeezing some Gold ETF short sellers out of their positions. Short sellers in these three Gold ETFs are down -$760 million in year-to-date mark-to-market losses.
Looking at short selling trends over time provides insight into overall market sentiment as well as the strength of bearish conviction in individual equities. Our Blacklight SaaS platform and Black APP provides an up to date view of short selling and short covering on an equity, sector, index, or country-wide basis allowing investors\traders to better manage their existing long and short positions.
Click for 10 Day Complimentary Access to Bloomberg/S3 Black App Pro
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC (“S3 Partners”) to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks, and merits, as well as the legal, tax, accounting, and investment consequences, of such decisions.
