Shorts Are Running To Cover Some Of This ETF's Holdings

In the conversation about developed markets single-country traded funds, the iShares MSCI Singapore Index Fund (ETF) EWS is often overlooked. The city-state is surrounded by emerging markets, but itself is a developed market and a small part of major developed markets equity indexes.

However, EWS is not a tiny ETF. It is home to $576.3 million in assets under management. Year-to-date, EWS is outperforming the MSCI EAFE Index by 430 basis points while being slightly less volatile than that widely followed developed markets benchmark.

Up 7.2 percent this year, EWS, the largest Singapore ETF trading in New York, is higher by 8.5 percent over the past 90 days, a gain that can be, at least partially, attributed to traders covering short positions on some well-known Singaporean stocks.

Covering Those Shorts

“The shares which make up the STI index, which was down by more than 10 percent in February, had seen their average short interest jump to a multiyear high during the worst of the recent sell-off. The selloff proved relatively short lived however as the index has managed to get back on an even peg for the year which has in turn seen short sellers lose their appetite for Singaporean shares. The current constituents of the SPI index now see 1.6 percent of their free float shorted on average which represents a 27 percent fall from the average short interest seen during the height of February’s bear raid,” said Markit in a recent note.

Related Link: Go Post-Modern With This New ETF

Markit noted that covering among the STI's biggest names has been universal and not limited to a particular sector or industry group. EWS allocates over 54 percent of its weight to financial services stocks, nearly three and a half times its second-largest sector weight, industrials. Industrial and telecom names combine for a third of the ETF's weight.

Singapore is one of a small number of countries to hold an AAA credit rating and EWS has a trailing 12-month dividend yield of 2.91 percent. That is by no means spectacular, but it is decent among developed markets ETFs in the current low-yield environment.

“The covering does seem to have lost some steam in recent weeks however as demand to borrow STI shares has been relatively flat since June; driven by a couple of names seeing a resurgence in short interest. The one standout firm is Sembcorp Marine whose short interest has increased by more than 60 percent in recent weeks. While its current short interest is still some way off the highs set back in February, its most recent earnings showed that the island nation was still very much exposed to developments overseas as profits fell by over 90 percent due to a sharp drop in oil rig orders,” added Markit.