ETF Short Sellers Are Targeting Retail, Biotech

The S&P 50o has come roaring back in the past two months, but there are still plenty of skeptics when it comes to the recent rally.

There is currently $168.2 billion in aggregate domestic ETF short interest, according to S3 Partners analyst Ihor Dusaniwsky. Over the past month, Dusaniwsky said short sellers have been dialing back their exposure a bit as the market rallied, reducing their positions by about $18 billion.

As of Tuesday, here are the six most heavily shorted domestic ETFs:

• SPDR S&P 500 ETF Trust SPY, $57.7 billion in short interest.
• PowerShares QQQ Trust, Series 1 QQQ, $13.8 billion in short interest.
• iShares Russell 2000 Index IWM, $12.4 billion in short interest.
• SPDR S&P Biotech XBI, $6.4 billion in short interest.
• iShares iBoxx $ High Yid Corp Bond HYG, $5.9 billion in short interest.
• iShares MSCI Emerging Markets Indx EEM, $3.7 billion in short interest.

Short Percent Of Float

By far the most heavily shorted ETF is the SPY ETF, which tracks the S&P 500 and represents a simple bet against the U.S. stock market and/or a hedge against long positions in U.S. stocks. Since mid-March, SPY short interest is up 55.1%. However, when it comes to short percent of float, the XBI Biotech ETF is has the highest of the five ETFs mentioned above at 128.1%.

While it may seem alarming for more than 100% of an ETFs float to be held short, Dusaniwsky said ETF short selling is different than typical stock shorting.

“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,” he said. In fact, the XBI biotech isn’t the only ETF with a short percent of float above 100%.

Here are the six ETFs with at least $25 million in short interest that have the highest short percent of float, according to S3:

• SPDR S&P Retail XRT, 267.6% of float.
• BARCLAYS IPTH SRS B S&P SHRT TRM ETN VXX, 259.4% of float.
• XBI ETF, 128.1% of float.
• VANECK VECTORS/SEMICONDUCTOR ETF SMH, 97.7% of float.
• SPDR KBW Regional Banking KRE, 81.2% of float.
• iShares MSCI Mexico Inv. Mt. Idx. EWW, 79% of float.

The highest short percent of floats data is an indication of where short sellers see the most potential weakness in the market. Short sellers are betting most aggressively against retail stocks, volatility and biotech stocks.

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