With interest rates and worldwide markets surprisingly volatile during the supposed summer doldrums, ETF short side activity has been volatile as well.
SPY, IWM and QQQ remain the top three most shorted ETFs, as they have been for years, but there have been some changes in the rest of the constituents. There are five Bond ETF presently in the top 20, but since January the Spider Bloomberg Barclays High Yield Bond ETF (JNK) had 11.0 million shares ($1.19 billion) in short covering and now has $1.28 billion in total short interest. Even though there is one less fixed income ETF in the Top 20, short interest of the five that remain is $857 million larger than the six in Januaryâ€™s Top 20. Two other ETFs that are missing since January, the iPath S&P 500 VIX ST Futures ETF (VXX) and the Spider S&P Regional bank ETF (KRE). Replacing these three ETFs are the Spider DJIA ETF (DIA), the Vanguard Real Estate ETF (VNQ) and the iShares U.S. Real Estate ETF (IYR).
Although Short Interest as a % of Float changes appreciably as ETFâ€™s are created and redeemed, it can be an indication of liquidity in the stock loan market as well as an indicator of overall long buying demand versus short selling demand in a particular ETF. The ETFs with the largest Short Interest as a % of Float are:
In August, the largest increase in ETF short interest was in the Spider S&P 500 ETF (SPY) which saw $2.68 billion of additional shares shorted in just three weeks. The SPY ETF continues to be the largest portfolio hedging vehicle and this monthâ€™s volatility and market movements increased the need for SPY additional delta hedging. Bond ETFs also saw active short selling with the IShares iBoxx High Yield Corp Bond ETF (HYG); IShares iBoxx $ Inv grade Corp Bond ETF (LQD); iShares 20+ Year Treasury Bond ETF (TLT) and Vanguard Total Bond market ETF (BND) up $1.5 billion in new short selling activity this month.
There was not much activity on the short-covering side, with Invescoâ€™s QQQ Nasdaq 100 ETF (QQQ) topping the league tables with a meager $174 million in net short covering over the last three weeks. Interestingly, we had three China based ETFs with short covering. The Xtrackers harvest CSI 300 China A ETF (ASHR); KraneShares CSI China Internet Fund ETF (ACWI) and iShares MSCI China ETF (MCHI) had $121 million in short covering in August. This short covering saw their net short interest decrease by 16% to $628 million.
Overall, ETF shares shorted increased by $5.7 billion in August. With ETFs that saw an increase in shares shorted increase by $8.3 billion while ETFâ€™s that had a decrease in shares shorted decrease by -$2.6 billion.
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