We track over 2,900 ETFs with short interest in the U.S. domestic market with total short interest of $244 billion. Over the last 30 days we have seen net short selling of +$14 billion, with 1$1.1 billion of short covering over the last week. Overall, the S3 short interest as a % of float for these ETFs is 15.53% while the traditional short interest % of float is 21.43%. The average stock borrow rate is 0.71% 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 order of the top three has not changed there is more short exposure in the three ETFs. Total short interest in the top three increased +$13 billion to $101 billion since the end of 2020, an increase of +14%.
Other notable changes to the ETF short interest league tables since the end of 2020 are:
- The Spider S&P Oil & Gas Exploration and Production ETF (XOP) was the biggest riser in 2021, climbing 7 spots to #11 as its short interest increased by +$565 million, or +27%. Short sellers may be looking for a lull in the nearly four month long crude rally.
- The only other large upside mover was the Spider Health Care Select Sector ETF (XLV) which jumped 4 spots to #10 with a +$256 million increase in short interest, +11%. The healthcare sector has been steadily rising since its march lows and shot sellers may be looking for a rotation out of the sector and a pullback in price.
- On the downside, the iShares Core U.S. Aggregate Bond ETF (AGG) almost fell out of the top twenty-five, falling 14 spots to #22 with a decline in short interest pf -$1.43 billion, or -42%. The three other fixed income ETFs, the HYG, LQD and TLT, did not see any significant changes to their short interest as investors continued to short the specialized bond ETFs while covering the broad-based AGG.
- Short interest in the Spider DJIA ETF (DIA) fell by -$152 million, a decrease of -7%, and DIA fell 5 spots to #20.
- The Vanguard Total Stock Market ETF (VTI) continues to see a decrease in its short interest, after falling from #15 to #20 in late 2020 the ETF has fallen to #24 with a decrease of -$44 million of short interest in 2021.
- The Spider Financial Select Sector ETF (XLF) fell three spots to #14 as we saw a -$29 million drop in its short interest. The rally in the financial sector may be forcing some short sellers to trim their short exposure in the sector.
An ETF’s stock borrow cost is more heavily dependent on the type of long shareholders in the security than just its market cap and stock borrow demand. The higher the percentage of retail long shareholders generally the higher the stock borrow rates. This is because there are fewer ETF shares that are marginable/rehypothicatable which in turns shrinks the overall lending pool. The average ETF stock borrow fee is 0.71% while the average Russell 3000 stock borrow fee is only 0.40%.
ARK Investment Mgt’s ETFs have had tremendous inflows recently, with an increase of +$15.2 billion in 2021 bringing their total AUM to $58.6 billion (according to etf.com). Total short interest in the ARK ETFs has grown to $1.79 billion, after averaging just $131 million of short interest in 2020.
While there are technical trading reasons to short ETFs with such AUM and stock price growth in expectation of a price retracement, the reality is that by shorting into this ARK rally short sellers were down -94% of mark-to-market losses in 2020 and are already down -16.4% in 2021. These losses have tempered short selling in these ETFs somewhat, but that has not stopped short interest in these ETFs from growing to $1.79 billion. Short interest in these ETFs will probably increase as technical trading and hedging activity continues to grow, but if these ETFs continue to outperform mark-to-market losses will continue to accumulate as well.
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.
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 [email protected]
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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.