Short sellers have these 3 ETFs in view

Investors are paying more attention than ever to the practice of selling stocks short. The risks of short selling have never been so obvious, as the recent GameStop (NYSE: GME) and other stock exposures. Now some investors are looking for other heavily shorted stocks to see if they can replicate their success by pushing GameStop’s stock price so dramatically higher, at least temporarily.

While many short sellers focus on individual stocks, others prefer to work with exchange traded funds. Three ETFs in particular have seen extremely high short interest figures lately, and some are wondering if there is an opportunity to jump on the short band or bet against shorts by buying stocks. Let’s count ETFs with the largest percentage of their floats sold short.

3. Exploration and production of oil and gas SPDR S&P

The bronze medal on the short sold ETF podium is currently SPDR S&P Oil and Gas Exploration and Production ETF (NYSEMKT: XOP). He currently has short interest of approximately 35.6 million shares. This represents 91% of the fund’s approximately 39.1 million shares outstanding.

It’s easy to see why investors are targeting this ETF. Energy stocks have suffered badly over the past 12 months, and the ETF has fallen 60% shortly after the start of the COVID-19 pandemic. Oil prices even briefly turned negative, sparking the creation of small exploration and production companies, and even shaking up many oil majors.

More recently, however, short sellers have been punished by the Oil and Gas Equity ETF. Stocks have rebounded 66% in the past three months, as oil prices rebounded above the $ 50 a barrel mark. Industry analysts increasingly believe that market conditions could improve over the long term.

Nevertheless, there is still a lot of uncertainty in the oil and gas sector. This explains why so many people are betting against the E&P segment. If the energy sector cannot sustain its recent rally, another wave of lower oil and gas stocks could work in favor of short sellers.

2. SPDR S&P Biotech

SPDR S&P Biotech (NYSEMKT: XBI) earns second place in this list of the best ETFs sold short. The fund has a whopping 103% of its 48.8 million shares outstanding sold short. This is possible because stocks can be loaned out more than once and the liquidity that comes from creating and redeeming ETF shares gives institutional investors much more flexibility than short selling individual stocks. .

The biotech ETF has an equal weight, and one of the reasons it has gained attention is that it owns stocks that short sellers have focused on. For example, Ligand Pharmaceuticals (NASDAQ: LGND) has been in the spotlight on short selling lately, with 62% of its outstanding shares sold short in mid-January. Demand for Captisol, a cyclodextrin-based product used for the stability and solubility of active pharmaceutical ingredients, jumped last year due to development linked to COVID-19. Some wonder if this peak could prove to be short-lived.

That said, SPDR S&P Biotech has been performing very well, up over 80% last year and 15% just since the start of 2021. It is difficult to predict a major reversal that would justify the interest of short sellers. for the ETF.

1. SPDR S&P Retail

Easily take first place is ETF SPDR S&P Retail (NYSEMKT: XRT). The ETF recently posted an incredible short interest rate of 465%, with over 12 million shares short and only 2.6 million outstanding.

The explanation for the interest of short sellers is even more obvious here. The Equal Weight ETF counts GameStop among its holdings. When investors who shorted couldn’t borrow GameStop stocks directly, going through that ETF indirectly made a lot more sense. When the GameStop share price surged, it briefly represented more than 20% of the ETF’s assets.

The SPDR S&P Retail ETF may seem like a reasonable short candidate given the woes that retailers have experienced. But the fund has actually grown by almost 80% over the past year, as it owns many retailers who have actually taken advantage of growing demand during the COVID-19 pandemic. More recently, the fund did what short sellers GameStop wanted, increasing and decreasing with the actions of the video game retailer. But in a supposedly dying industry, the ETF has done quite well.

Beware of short sales

Betting on stocks can be lucrative, but it comes with high risk. Even when doing your short sales through a Diversified ETF, you should be aware of the losses you can incur if you go wrong.

A tightening for these ETFs is unlikely. Yet the gains these ETFs have brought to their shareholders in recent times only accentuate how dangerous short selling can be.