ETF short selling was very active over the last two weeks as Coronavirus fears sparked a meltdown across the entire market. We track short selling activity in over 2,500 domestically traded ETFs with short interest of $161 billion. Over the last two weeks we saw +$6.2 billion of additional net short selling in ETFs, an increase of just over +4.0%. The mega-shorts in the ETF sector held their spots in the ETF league tables, with the top seven most shorted ETFs holding onto their positions. But spots 8 to 20 saw a lot of movement as short sellers adjusted their hedges and looked for alpha in different sectors.
The largest increase of ETF short selling occurred in the Spider S&P 500 ETF (SPY) as the biggest portfolio hedge got even bigger with $3.6 billion of short selling over the last two weeks. Surprisingly, the other two of the ETF hedging triumvirate (QQQ & IWM) had -$327 million of short covering as portfolio hedgers and short sellers seeking Alpha looked towards the larger cap S&P 500 instead of the tech heavy Nasdaq and broader market Russell 2000. Another focus was the corporate debt market with the HYG, LQD, JNK, BKLN and VCIT all seeing active short selling. The risk of a credit event has enticed short sellers to short both high yield and investment grade corporate debt as well as the leveraged loan market. Also, as expected, we saw increased short selling in the China based MCHI and ASHR ETFs as well as the Japanese EWJ ETF.
Surprisingly, with VIX nearing the 40 handle, we saw increased short activity in both the VXX ETF and the leveraged TVIX ETF. Possibly indicating that a two week move from 14.15 to 39.16 may be overblown and shorts are looking for a major reversal when markets settle down.
While there were almost as many ETFs with net short selling versus net short covering, the value of the short selling was much greater. Over the last two weeks we saw 972 ETFs with net short selling worth +$10.70 billion and 1,007 ETFs with net short covering worth only -$4.48 billion.
While investors were shorting corporate bond ETFs they were covering their government bond exposures in anticipation of central bank rate cuts. Shorts were trimming their exposure to both their domestic and international govie related ETFs in AGG, TLT, BND, EMB, IEF and BNDX.
While investors increased their short exposure in the large cap SPY ETF they covered $863 million of their large cap\mid cap exposure to the non-US\Canada developed countries in the EFA and VEA ETFs.
Want deeper insight into the above analysis?
Contact: Ihor.Dusaniwsky@S3Partners.com
Managing Director Predictive Analytics, S3 Partners, LLC
For more information on S3’s reporting, data and analytics solutions, email us at Sales@S3Partners.com. Start your free trial of the BLACK App – the only source of real-time short interest on the Bloomberg Terminal or Thomson Reuters Eikon.
For short side data and access to our research reports go to https://shortsight.com/ .
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.
