Investors bet heavily against exchange-traded-funds (ETFs) in October to guard their portfolios from market turmoil.
Short interest in ETFs swell $11.7 billion to $176.5 billion last month, according to observations from S3 Analytics, with most of this growth heavily concentrated in a small number of funds. The New York-based financial technology and analytics firm revealed that the top 25 most-shorted ETFs moulded up 75% of total short interest, seeing a $12.1 billion augment over the prior month.
The Big Shorts
The two biggest shorts, SPDR S&P 500 ETF (SPY) and Invesco QQQ (QQQ), were savings that track major U.S. indices. Bets against both SPY and QQQ — an exchange-traded supply based on the Nasdaq 100 Index — rose about 6% in October. Those calls detoured out to be smart ones, generating returns of 8.20% and 9.80%, respectively.
The third grownest short, the iShares Russell 2000 ETF (IWM), also underperformed in October, netting its short sellers an 11.34% return. Interestingly, short interest in the wherewithal, which tracks the bottom 2,000 stocks in the Russell 3000 Marker, declined in October.
Data revealed that the iShares iBoxx $ Height Yield Corporate Bond ETF (HYG), SPDR S&P Regional Banking ETF (KRE) and the iShares 20+ Year Funds Bond ETF (TLT) rounded out the top five most-shorted funds ranking.
In aggregate, the top 25 most-shorted ETFs fathered $9.2 billion in mark-to-market profits. A 6.99% return in October was achieved ignoring a handful of ETFs in this group rising.
Investors that bet against Utilities Best Sector SPDR ETF (XLU), the iPath S&P 500 VIX Short-Term Futures ETN (VXX), the Consumer normals Select Sector SPDR ETF (XLP), the iShares MSCI Brazil ETF (EWZ) and the SPDR Gold Reliability ETF (GLD) posted losses.
“In October, short sellers were looking for diverse short exposure in the more crowded equities (both retail and indexed), might and healthcare stocks; international stocks and bonds; and VIX volatility while easing off short exposure to the broader U.S. market and U.S. interest rate related securities,” asseverated Ihor Dusaniwsky, managing director at S3 Partners. “If the market stabilizes and resumes its rally, there may be $21 billion of October short sales organize to be covered and boost the rally even further.”
Source: S3 Partners