Markets

Short Report: Investors Bet Against GLD, XLE

ETF short-sellers added to positions on both the SPDR Gold Shares (NYSEArca:GLD) and the Energy Select Sector SPDR ETF (NYSEArca:XLE), reflecting a broad sell-off in commodities that accompanied signs that the U.S. economic growth is slowing.

The number of shares short in GLD rose 18.5 percent in May, lifting to 5.8 percent the percentage of the ETF's outstanding float that is short. A total of 4.8 percent of the float was short in April. The number of XLE shares short meanwhile rose more than 16 percent, on top of an 18 percent increase in April. The short positions now amount to more than a third of XLE's long float, up from 28 percent in April.

Mounting short interest in widely traded commodities funds is consistent with selling last month, when outflows from commodities funds totaled almost $4 billion. Those redemptions were the leading edge of net flows that were negative for the first time since August 2010. Soft data, including the Case-Shiller housing report, paint the picture of slowing growth, which has taken the edge off spiking oil prices.

Another reflection of the slowing economy was the declining short interest in the iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca:TLT). The number of shares short in the ETF fell by more than 5 percent after declining 9.6 percent in April. Shorts now amount to more than 68 percent of the ETF's outstanding long float, compared with 100 percent in April, also a reflection of new long investors piling into TLT.

The selling-and the increased short-selling-extended to some of the biggest and most heavily traded ETFs last month, as our "Big Bets" table shows below.

Most noteworthy was the 4.7 percent increase in the number of shares short in the iShares Russell 2000 Index Fund (NYSEArca:IWM). That came on top of an 8 percent increase in April. The amount of IWM that's short rose to 131.9 percent of its outstanding long float from 111 percent in the prior month.

Some large investors, such as the Kauffman Foundation, have raised concern about the large amount of short interest in ETFs like IWM.

However, much of that criticism is overblown to the extent that the ETF structure would enable short-sellers to have new ETF shares created to cover positions as opposed to having to find existing shares in the market to close out those positions, as would be the case for individual stocks.

Really, Really Short

The real lightning rod in terms of short positions is the SPDR S&P Retail ETF (NYSEArca:XRT). The number of XRT shares short rose last month by more than 6 percent, and the amount of XRT that's short stood at more than 625 percent the amount of its outstanding float.

XRT is thus a fixture every month at the top of our "Really Really Short" table.

Some critics have wondered if an ETF with such a heavy burden of short positions could collapse, though IndexUniverse Global Head of Editorial Matt Hougan pretty much dispelled that notion last year in a blog titled "Can An ETF Collapse? No."

Another ETF that's heavily shorted is the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca:XOP). The number of XOP shares short jumped a little more than 30 percent in May, and all the shorts totaled more than 300 percent of the ETF outstanding long float at the end of the month. That number was 221 percent at the end of April, when the number of shares short held about steady.

Big Bets
Ticker Name % Float Short 1 Month % Change $Short ($, M)
SPY SPDR S&P 500 50.62 -3.37 45,162.46
IWM iShares Russell 2000 131.90 4.69 22,005.35
QQQ PowerShares QQQ 20.36 -0.93 4,962.36
XRT SPDR S&P Retail 626.26 6.25 4,780.68
GLD SPDR Gold Shares 5.77 18.50 3,447.79
XLE Energy Select SPDR 33.94 16.55 3,317.78
XOP SPDR S&P Oil & Gas Exploration & Production 320.57 30.17 3,279.80
EEM iShares MSCI Emerging Markets 7.68 0.69 3,088.27
IYR iShares Dow Jones U.S. Real Estate 82.60 -19.67 3,081.12
TLT iShares Barclays 20+ Year Treasury Bond 68.83 -5.28 2,156.22

Really Really Short
Ticker Name % Float Short 1 Month % Change $Short ($, M)
XRT SPDR S&P Retail 626.26 6.25 4,780.68
XOP SPDR S&P Oil & Gas Exploration & Production 320.57 30.17 3,279.80
RTH Retail HOLDRS 243.94 -25.01 403.61
SMH Semiconductor HOLDRS 214.93 -1.05 1,077.46
KRE SPDR KBW Regional Banking 185.88 0.28 1,078.15
SOXX iShares PHLX SOX Semiconductor 169.61 19.01 393.84
FXE CurrencyShares Euro 164.39 27.86 601.05
RKH Regional Bank HOLDRS 153.81 -12.73 150.12
UTH Utilities HOLDRS 148.83 -4.41 68.26
IWM iShares Russell 2000 131.90 4.69 22,005.35

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 Nasdaq, Inc.


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

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