There are 2,694 ETFs and Funds with active shares shorted in our Blacklight SaaS platform and Black App with $255 billion of short interest. Average Short Interest % of Float is 19.74% and S3 SI % Float (which includes synthetic longs created by every short sale in the Float number) is 14.75%, while the average stock borrow fee is 0.79%. As a comparison, U.S. equites have an average SI % Float of 5.00%, S3 SI % Float of 4.54% and average stock borrow fee of 0.59%.
Overall ETF short exposure increased from $249.7 billion to $254.6 billion, an increase of +$4.9 billion or +2.0%, over the last 30 days. Change in short interest is comprised of mark-to-market price changes of existing shorts and short selling and covering. Over the last 30 days we saw a +$3.0 billion increase in the market-to-market value of existing short positions and +$1.9 billion new net short selling. ETF short sellers experienced an increase in exposure due to market strength and continued to short into the rising ETF market. This indicates that ETF short sellers were looking to add to their exposure as the markets rose, either increasing their outstanding hedges or putting on more risk (Alpha generating) positions.
The $1.9 billion of net ETF short selling over the last 30 days had big movers in both directions. The QQQ and SPY hedging ETFs had almost $2.0 billion of new short selling, implying that portfolio managers were looking for outsized moves to the downside in the more tech related and larger cap securities while the broader IWM ETF had -$220 million of short covering. Additionally, we saw increased short selling the semiconductor ETF (SMH), gold ETF (GLD), China ETF (FXI) and the ARK Innovation ETF (ARKK). Shorts were seen trimming exposure in international and emerging market ETFs (EFA, EEM, IXUS & BNDX), the health care sector (XLV) and the financial sector (XLF).
ETF short interest as a % of Float is a much more fluid metric than it is for equities and ADRs as ETFs are constantly created and\or redeemed which changes their shares outstanding\float numbers sometimes daily. The following are ETFs with the highest SI % Float with overall short interest greater than $100 million.
SI % Float is just one of the variables in our multi-factor Crowded Score along with the overall size of the short, stock borrow liquidity\costs and trading liquidity. The ETFs with the highest Crowded Scores are:
ETF stock borrow fees rarely get very expensive (over 5% fee) as brokers will usually create ETF shares in order to meet stock borrow demand as rates make the share creation and hedging profitable. Rates in certain ETFs tend to climb for two main reasons, there is very little marginable or rehypothicatable stock in the market which limits the stock lending availability pool or the process of creating and hedging the ETF is difficult or very expensive (active ETFs or ETF with illiquid constituents). The following are ETFs with the highest stock borrow fees with short interest over $100 million.
Institutionally ETFs are primarily used as a portfolio hedging vehicles (SPY, IWM & QQQ shorts make up 43% of total ETF short interest) so one can expect that in an upward trending market most of the larger ETF short positions would have negative returns. ETF shorts were down -$3.15 billion in net-of financing mark-to-market losses, -1.22%, over the last 30 days. The following are the most and least profitable ETF shorts in dollar terms over the last thirty days.
The outright size of some ETF shorts can skew the results when looking at Profit & Loss in dollar terms, looking at Profit & Loss in percentage terms tells us which shorted ETFs had the largest price moves over the last thirty days.
The ARKK ETF continues to be a very active short recently with +$610 million worth of new short selling over the last thirty days. There is $3.95 billion of short exposure in ARK ETFs with a total of $724 million of new short selling in the group over the last 30 days. While the ARK family of ETF’s SI % Float is smaller than the average U.S. ETF their stock borrow fees are higher as stock borrow availability in these funds is limited. The scarcity of lendable shares is due to the lack of institutional holders and retail holdings primarily in fully-paid for accounts and not margin accounts which limits broker rehypothecation of internally held client assets.
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.
Research Note written by Ihor Dusaniwsky, Managing Director of Predictive Analytics, S3 Partners, LLC
For deeper insight into short side data and analysis contact me at Ihor.Dusaniwsky@S3Partners.com
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.