We track over 2,500 ETFs with short interest in the U.S. domestic market with total short interest of $185 billion. Over the last 30 days we have seen net short selling of +$636 million, with an acceleration of short selling of +$1.1 billion over the last week as market volatility increased substantially. Overall, ETF short interest as a % of float is 18.66% and the average stock borrow rate is 0.67% fee.
The three most shorted ETFs continue to be the Spider S&P 500 ETF (SPY), Invesco Nasdaq QQQ ETF (QQQ) and the iShares Russell 2000 ETF (IWM). While the top three hasn’t changed, the amount shorted since the beginning of August has, SPY shares shorted decreased by -$4.2 billion; QQQ increased by +$3.3 billion and IWM increased by +$1.5 billion. Short sellers are increasing their hedges in the technology stocks (Nasdaq via the QQQ) and the broader smaller cap market (Russell 2000 via the IWM) but decreasing their hedges\exposure to the blue chips (S&P 500 via the SPY).
Other notable changes to the ETF short interest league tables since the beginning of August are:
- The Spider S&P Biotech ETF (XBI) fell two spots as its shares shorted decreased by -$468 million. After rallying since its March lows, the sector has been only slightly down since mid-July. Shorts may be exiting their positions as Covid-19 vaccines and anti-virals are getting closer to fruition.
- The iShares 20+ Year Treasury Bond ETF (TLT) saws short interest increase by +$572 million and jump up two spots in the rankings. Short sellers are looking for more movement on the long end of the yield curve relative to the short end.
- Short interest in the Spider DJIA ETF (DIA) jumped by $529 million. While shorts are active in the broader smaller cap IWM ETF and covering in the narrower larger cap SPY ETF it looks like they are shorting the even narrower larger cap price weighted DIA ETF.
- The Spider Utilities Select Sector ETF (XLU) fell out of the top twenty with $755 million worth of short covering since the beginning of August. After recovering half of its March low in less than a month, the ETF’s performance has been relatively flat, especially over the last month and a half.
- The Vanguard Total Stock Market ETF (VTI) fell from number 15 to number 20 in the short interest league table as short sellers covered a quarter of their exposure, -$553 million. Looking at the increase of short selling in the smaller cap IWM ETF, shorts look like they are reducing their exposure to the larger cap blue chips with covering in both the VTI and SPY ETFs.
- The Spider Health Care Select Sector ETF (XLV) jumped two spots as we saw an additional +$150 million of new short selling. While the biotech ETF (XBI) saw buy-to-covers this health care ETF saw new short selling due to the possibility of increased oversight and cost cutting regardless of which party wins the upcoming election.
Looking at activity over the last 30 days
- As we saw in the short selling activity in August\September the Spider S&P 500 Biotech ETF (XBI) had $181 million of short covering over the last 30 days, but interestingly the iShares Nasdaq Biotech ETF (IBB) had $%117 million of new short selling. Investors may see Nasdaq biotechs as overheated and due for a pullback while the S&P 500 biotechs as priced more fairly.
- The Xtrackers Harvest CSI 300 China A ETF’s (ASHI) short interest climbed by +50% over the last 30 days as short sellers are looking for short exposure in Chinese local shares rather than the ADR offshore traded securities.
- Tech stocks, which have been the backbone of this year’s rally, have been cooling off recently and short sellers are looking for exposure to the sector rather than throwing darts and hoping to pick the individual securities that are poised for a pullback. Short selling in the Spider Technology ETF (XLK) increased by +$349 million over the last 30 days.
- In lockstep with the pullback in tech stocks is the pullback in the price of gold after its yearlong rally. Gold is down -7.7% since it hit its year-to-date high of $2,063.55 in August and shorts have been active in the Spider Gold Trust ETF (GLD) with +$289 million of additional short selling over the last 30 days.
- Fixed income based ETFs had a roller coaster ride on the short side over the last 30 days with short sellers mixing and marching their exposure over a wide array of securities.
- Fixed income ETF short sellers are reducing their exposure in the market wide ETFs such as the iShares Core U.S. Aggregate Bond ETF (AGG) and Vanguard Total Bond market ETF (BND) with $166 million worth of new short covering.
- Corporate bond ETF short sellers have been very active recently. Over the last 30 days we have seen short covering, -$229 million, in the Spider Bloomberg Barclays High Yield Bond ETF (JNK) while putting on new shorts, +$340 million, in the iShares iBoxx High Yield Corporate Bond ETF (HYG). The JNK ETF invests in slightly lower credit rated securities with slightly longer durations than the HYG ETF. On the more credit worthy and longer duration side of the curve, there has been increased short selling, +$132 million, in the iShares iBoxx $ Investment Grade Corporate Bond ETF.
- There has been a slight decrease in short exposure in the iShares National Muni Bond ETF (MUB) with $86 million worth of short covering.
- On the treasury side, short sellers are jumping into the long end of the curve with $523 million worth of new short selling in the iShares 7-10 Year Treasury Bond ETF (IEF) and iShares 20+ Year Treasury Bond ETF (TLT) while buying-to-cover $56 million of short positions in the Spider Bloomberg Barclays 1-3 Month T-Bill ETF (BIL).
ETF short selling is either used as a hedging vehicle or to generate Alpha. Knowing the short side activity in these securities is an additional data point to pair with long ETF buying\selling which will provide insight to both sides of the investing coin.
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.
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.