Our Black App and Blacklight SaaS Platform follows almost three thousand domestically traded ETFs with short interest activity with a total short interest of $168.2 billion. The Average Short Interest % Float of these securities is 24.61% with an average stock borrow fee of 0.63%. While over the last 30 days we have seen a total of $6.80 billion in short covering, over the last week we have seen short sellers increasing their short ETF positions by $510 million.
Domestic ETFs with largest Short Interest (minimum $25 million short interest):
SI % of Float is not as useful a metric as it is for equities because the denominator (Float) changes on a daily basis due to active ETF creations and redemptions. A high ETF SI % Float can be an indication of higher stock borrow rates and potential lack of availability, but if long ETFs are custodied in margined or rehypothecatable brokerage accounts the ability to re-lend shares can expand stock loan availability and keep rates from getting higher.
Domestic ETFs with largest Short Interest % of Float (minimum $25 million short interests):
ETF stock borrow fees are affected by short side demand and lendable share availability. The Grayscale Bitcoin Trust ETF (GBTX) is the most expensive ETF to borrow (of all ETFs with $25 million of short interest) as Bitcoin has appreciated by +31% over the last month and shorts are looking for at least a short term reversal. The cost to borrow the iShares MSCI Turkey ETF (TUR) and the Xtrackers Harvest CSI 300 China A ETF (ASHR) are high due to their relatively small market caps and lack of shares in institutional lending accounts. Most of the available shares to borrow in both the TUR and ASHR ETFs have already been taken down and we should expect stock borrow rates to continue to climb if short selling demand continues to grow.
Domestic ETFs with highest Stock Borrow Fees (minimum $25 million short interest):
ETF short selling activity can be very volatile as shares are shorted for both hedging and Alpha generation. As the overall market ebbs and flows, portfolio managers delta hedge their positions to reflect the new amount of risk or notional they need to hedge. The primary ETF hedging vehicles are the Spider S&P 500 ETF (SPY US), the Invesco QQQ Nasdaq Trust ETF and the iShares Russell 2000 ETF (IWM US).
Looking at bearishness conviction on the short side can provide insight into market trends of the stocks that are being shorted. By breaking up last month’s short selling and covering activity between trading activity during first three weeks (April 24th to May 14th) of the time period versus the last week (May 16th to May 21st ) we can see if the outlook, hedging and Alpha potential, has changed.
Short side bearishness in the following ETFs has not waned, shorts were active for three weeks and continued to sell short last week. Short sellers on the iShares S&P 500 ETF were active throughout the last month, shorting $649 million worth of stock over the last month. Short sellers also continue to short the VVectors Gold Miners ETF and the disconnect between gold mining stocks and the actual gold commodity continues. Finally, with China continuously in the news, short sellers are still shorting Chinese ETFs, with the iShares China Large Cap ETF getting $221 of new short selling over the last month.
Domestic ETF Short Activity: 3 Week Shorting > 1 Week Shorting (minimum $25 million short interest):
We have seen a reversal of bearishness in the following ETFs, short selling for three weeks followed by one week of short covering. Shorts were actively hedging or seeking broad market Alpha over the first three weeks of the last month, but abruptly reversed course and covered virtually all their activity over the last week in the iShares Russell 2000 ETF (IWM). Short selling also reversed conviction in the iShares iBoxx S Investment Grade Corporate Bond ETF (LQD) and the VVectors Semiconductor ETF (SMH).
Domestic ETF Short Activity: 3 Week Shorting > 1 Week Covering (minimum $25 million short interest):
With tech stocks leading the recent rally we have seen continued short covering in the tech heavy Invesco QQQ Trust ETF (QQQ) with over half a $ billion of buy to covers in the ETF over the last month. While the VVectors Gold Miners ETF (GDX) has seen strong short selling over the past four weeks, the Spider Gold Trust ETF (GLD) has seen continued short covering over that same time period. Short sellers seem to be bearish on the gold miners but less bearish (bullish) on gold bullion. Lastly, shorts are trimming their healthcare exposure as Covid-19 vaccine news turns more positive, the Spider Healthcare ETF had $147 million of short covering over the last month.
Domestic ETF Short Activity: 3 Week Covering > 1 Week Covering (minimum $25 million short interest):
Shorts selling activity in the S&P 500 ETFs increased over the last week, as noted earlier the iShares S&P 500 ETF (IVV) had continued short selling over the last four weeks, the Spider S&P 500 ETF (SPY) saw a complete reversal of sentiment over the last month. SPY short sellers had been covering in size for the first three weeks of the month, -$3.9 billion of buy to covers, but shorted $1 billion worth of ETFs over the last week. Corporate bond fixed income short selling increased over the last week as well. The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) had continued short selling of $244 million over the last month while the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) saw extensive short covering turn into $486 million worth of short selling over the last week. For the first three weeks of the month, shorts were bearish on investment grade bonds and bullish on high yield corporate bonds, but by the end of the month they became bearish in both.
Domestic ETF Short Activity: 3 Week Covering > 1 Week Shorting (minimum $25 million short interest):
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 as well as
Want deeper insight into the above analysis?
Contact: Ihor.Dusaniwsky@S3Partners.com
Managing Director Predictive Analytics, S3 Partners, LLC
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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.
