Dec. ETF Short Report: Energy Prices Rising

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Investors sharply curtailed their short positions in two heavily traded energy-focused ETFs in December, as the price of oil soared past $90 a barrel and the national average price for a gallon of gasoline neared $3.

The SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca:XOP) saw a 10.4 percent decrease in the number of shares being shorted in December, while short interest in the SPDR Select Sector Energy Fund (NYSEArca:XLE) declined by 29 percent.

Investors still have significant short positions in both XOP and XLE, which have been mainstays of our "Big Bets" table for months.

But those positions are shrinking. XLE, for instance, which was seventh on the list in November with $2.63 billion in short interest, dropped to 10 th place in December, with just under $2 billion worth of short interest.

U.S. equities also saw a significant decline in short interest in December. Both the SPDR S&P 500 ETF (NYSEArca:SPY) and the iShares Russell 2000 ETF (NYSEArca:IWM) saw nearly identical declines, of about 14 percent, in the number of shares being shorted.

Big Bets
Ticker Name % Float Short 1 Month % Change $Short ($, M)
SPY SPDR S&P 500 35.08 -13.77 32,326.62
IWM iShares Russell 2000 73.10 -13.87 12,893.11
QQQQ PowerShares QQQ 18.65 0.24 4,330.46
IYR iShares Dow Jones U.S. Real Estate 116.68 11.91 3,270.22
XRT SPDR S&P Retail 653.41 4.06 3,055.40
EEM iShares MSCI Emerging Markets 5.59 32.40 2,628.14
GLD SPDR Gold 4.50 -6.15 2,544.47
XOP SPDR S&P Oil & Gas Exploration & Production 280.50 -10.44 2,261.50
DIA SPDR Dow Jones Industrial Average Trust 22.64 28.27 2,050.06
XLE Energy Select SPDR 22.71 -29.04 1,963.91

Really Really Short

While short interest in XOP dropped dramatically in December, it remains near the top of our "Really Really Short" table, with 280.5 percent of total shares outstanding currently sold short.

However, the heavily traded SPDR S&P Retail ETF (NYSEArca:XRT) maintained its place at the top of the "Really Really Short" list in December, with just over 650 percent of the float short.

XRT was the subject of some controversy last year after some in the asset management industry warned that XRT could potentially collapse under the weight of such heavy short interest.

Although Index Universe's Global Head of Editorial Matt Hougan publicly debunked this myth, ETF industry sources said the ill-informed notions about XRT's vulnerability may still persist in some quarters.

The more likely explanation for the heavy short interest in XRT, along with its retail sector cousin the Retail HOLDRs ( RTH ), is that retail sector investors frequently use these funds to hedge their long positions in one or two retail stocks, according to ETF traders.

Indeed, XRT's popularity among traders is plainly evident in the flows data IndexUniverse.com tracks every day. The fund finished 2010 with assets under management of $976.7 million, collecting $347.1 million of that in December alone.

Since the start of 2010, the ETF's assets have plummeted. On Jan. 11, XRT ended the trading session with $489.0 million after collecting $21 million in new money.

It's all a day at the office for a widely traded exchange-traded fund, and ETF industry insiders stress that buy-and-hold investors in XRT would have enjoyed returns of about 30 percent in the past year-all the buying, selling and shorting notwithstanding.

As in November, regional banks were prominent features on the Really Really Short list last month as well.

The SPDR KBW Regional Banking ETF (NYSEArca:KRE) remained in third place, although the percentage of outstanding shares sold short declined by nearly 11 percent. The Regional Bank HOLDRS ( RKH ) rose to fourth place from seventh place in November, with short interest rising by 2.7 percent.

Really Really Short
Ticker Name % Float Short 1 Month % Change $Short ($, M)
XRT SPDR S&P Retail 653.41 4.06 3,055.40
XOP SPDR S&P Oil & Gas Exploration & Production 280.50 -10.44 2,261.50
KRE SPDR KBW Regional Banking 161.42 -10.51 1,061.21
RKH Regional Bank HOLDRS 139.04 2.69 146.72
IYR iShares Dow Jones U.S. Real Estate 116.68 11.91 3,270.22
UTH Utilities HOLDRS 116.09 10.77 64.58
RTH Retail HOLDRS 111.20 -17.51 485.44
BDH Broadband HOLDRS 99.98 444.43 12.36
SMH Semiconductor HOLDRS 97.54 -18.41 683.48
FXE CurrencyShares Euro 88.63 -11.13 355.21

Data is believed to be accurate; however, transient market data is often subject to subsequent revision and correction by the exchanges.

Don't forget to check IndexUniverse.com's ETF Data section.

Copyright ® 2011 Index Publications LLC . All Rights Reserved.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: IWM , KRE , RKH , RTH , XLE

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