Most Shorted ETFs

April 10, 2019

11 ETFs Once Again On List

Eleven of today's most-shorted ETFs appeared on the list the last time we compiled it, but in different positions, reflecting changing market conditions and trader outlooks.

For example, consider energy ETFs—a common theme between then and now. The last time we looked, natural gas ETFs like the United States Natural Gas Fund LP (UNG) and the VelocityShares 3x Long Natural Gas ETF (UGAZ) topped the chart.

Today, however, crude oil ETFs have attracted the bulk of short interest among energy ETFs. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) is the third-most-shorted ETF, followed by the Direxion Daily Energy Bear 3X Shares (ERY) at No. 7, the VelocityShares 3x Inverse Crude Oil ETN (DWT) at No. 14, the United States Oil Fund LP (USO) at No. 16 and the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (DRIP) at No. 18.

Interestingly, energy ETFs of both directions—long as well as inverse plays—have attracted short interest, suggesting no coherent market view: For every trader who thinks oil's about to go down, there's another who believes its price is about to pop.

Shorting The Short

This brings us to our next point: It isn't just inverse energy ETFs traders are shorting. The Direxion Daily Junior Gold Miners Index Bear 3X Shares (JDST), the ProShares Short VIX Short-Term Futures ETF (SVXY) and the Direxion Daily Gold Miners Bear 3x Shares (DUST) also appear on our most-shorted list, at positions Nos. 11, 12 and 20, respectively. (Speaking of geared funds, Direxion's 1.25x leveraged equity portfolios, the PortfolioPlus Developed Markets ETF (PPDM) and the PortfolioPlus Emerging Markets ETF (PPEM), make our list as well.)

Inverse products are themselves bets against areas of the financial markets. They hold futures on the underlying short positions, so that traders can "go short" by "going long" these products. It's a simpler process for those who don't want—or can't—do the shorting themselves (read: "Leveraged & Inverse ETFs: Why 2X Isn’t The 2X You Think").

So why short the short? Doing so allows traders to harness the power of leverage to make an exaggerated bet on the underlying long position.

That's even truer when you consider inverse products—especially leveraged inverse products—suffer from performance drag due to their daily rebalancing. The nature of daily rebalancing being what it is, the returns of a 3x gold miners ETF are not simply the opposite that of a -3x gold miners ETF; DUST, for example, has lost 21% year-to-date, whereas its companion fund, the Direxion Daily Gold Miners Index Bull 3X Shares (NUGT) has returned 13%.

As a result, shorting DUST has been the more lucrative play than going long in NUGT—a fact that, given DUST's proportionally high short interest, has not gone unnoticed by traders.

Short Selling Sector Funds

Other more vanilla products also appear on our most-shorted list, including several State Street Global Advisors-branded sector plays in biotech, financials, homebuilders and more.

The SPDR S&P Biotech ETF (XBI) is the fifth-most-shorted ETF, followed by the SPDR S&P Regional Banking ETF (KRE) at No. 8, the SPDR S&P Homebuilders ETF (XHB) at No. 10 and the SPDR S&P Metals & Mining ETF (XME) at No. 17.

Just like State Street's gargantuan SPY, the SPDR sector ETFs have massive liquidity underpinning them, making them ideal instruments for active traders looking to express tactical viewpoints (read: "Why 'SPY' Is King Of Liquidity").

Other highly shorted ETFs include three iShares products: the interest-rate-sensitive iShares iBoxx USD High Yield Corporate Bond ETF (HYG) at No. 13; the iShares MSCI Mexico ETF (EWW), a trade-war play, at No. 15; and the iShares U.S. Real Estate ETF (IYR) at No. 19, a bet on slowing U.S. economic growth.

Contact Lara Crigger at [email protected]

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