The month of March has been brutal so far for investors, but short sellers are making a killing off on the volatility caused by the COVID-19 coronavirus outbreak.
There is currently $154 billion in aggregate ETF short interest, 90% of which is in U.S. domestic ETFs, according to S3 Partners. S3 analyst Ihor Dusaniwsky said Tuesday there are 216 U.S. ETFs with short interest of at least $25 million.
Most Shorted ETFs
By far the most heavily shorted ETF is the SPDR S&P 500 ETF Trust (NYSE: SPY). The SPY ETF 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. Here are the top four most shorted U.S. ETFs, according to S3:
- SPY ETF, $37.2 billion in short interest.
- PowerShares QQQ Trust, Series 1 (NASDAQ: QQQ), $8.9 billion in short interest.
- iShares Russell 2000 Index (NYSE: IWM), $7.3 billion in short interest.
- iShares iBoxx $ High Yid Corp Bond (NYSE: HYG), $6.7 billion in short interest.
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Recent Short Seller Targets
Overall, Dusaniwsky said 79% of heavily shorted U.S. ETFs have seen their short interest rise in March. There has been a net increase in ETF short interest of $5.7 billion so far this month. Here are the four ETFs with the highest increases in short interest in March:
- SPY ETF, +$2.1 billion.
- iShares MSCI Emerging Markets Indx (NYSE: EEM), +$1.3 billion.
- iShares IBoxx $ Invest Grade Corp Bd Fd (NYSE: LQD), +$640.2 million.
- QQQ ETF, +$493.3 million.
Short Covering ETFs
But while short sellers are generally leaning into the market sell-off, some ETFs have also been experiencing heavy short covering as well. Here are the ETFs with the largest drops in short interest so far in March:
- CR SUISSE AG NA/VELOCITY SHS DAILY (NASDAQ: TVIX), -$1 billion.
- ISHARES TR/CORE MSCI EAFE ETF (BATS: IEFA), -$287.2 million.
- Vanguard Emerging Markets Stock Index Fd (NYSE: VWO), -$185.2 million.
- IWM ETF, -$168.7 million.
The general theme of the information above is that investors are betting against the U.S. market, particularly tech stocks. At the same time, they are reducing short exposure to volatility and Europe, Australia, Asia, and Far East stocks and ramping up short positions in investment-grade corporate bonds.
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