ETF Short Reports
April Short Report: Pressure On XLE Grows
May 11, 2011
Pressure on XLE grows as investors look to profit from easing energy prices.
Short-sellers again put pressure on the Energy Select SPDR (NYSEArca: XLE) in April, as traders began betting the run-up in crude oil prices was likely to run its course.
Crude oil has begun to cool since it rose well above $100 a barrel last month, suggesting some of the $2.9 billion worth of short interest in XLE might now be in the money. Short interest in the ETF rose by almost 19 percent, with short interest at 28 percent of the ETF’s outstanding shares, compared with about 22 percent in March, according to data compiled by IndexUniverse.
Short interest data are more a tool for measuring investor sentiment than identifying short-term trading opportunities and, apart from increased short interest in XLE as well as a drop in short interest in the Rydex CurrencyShares Euro ETF (NYSEArca: FXE), April looked to be a rather neutral month as far as any spike or decrease in bearish sentiment.
However, one noteworthy highlight last month was increased short-selling pressure on the SPDR S&P Retail ETF (NYSEArca: XRT). The fund has long been a mainstay on IndexUniverse’s “Big Bets” and “Really Really Short” tables, in large measure because it’s used so heavily by traders and institutions to hedge out other exposure to the retail sector.
Short interest in the ETF rose almost 14 percent in April after an 11 percent rise in March. The other piece of the data on XRT that’s worth noting was the near doubling in the percentage of shares that are short to more than eight times the size of the ETF's outstanding long float.
Such a high percentage of outstanding short positions has fueled concern among some in the money management world that an ETF with such a heavy burden of short interest might fail. IndexUniverse President of ETF Analytics Matt Hougan took on those arguments in a blog last September titled “Can An ETF Collapse? No,” effectively refuting such concerns.
FXE Shorts Drop
As noted above, FXE’s short interest dropped in April, in part because the European Central Bank raised official interest rates in the eurozone last week to 1.25 percent from a record low of 1.00 percent, thereby making the euro attractive relative to, say, the dollar.
Interest rates in the U.S. remain near zero, though the Federal Reserve did say last month that it had no intention of extending its “quantitative easing” program of bond buying beyond its expiration in June. The Fed’s actions suggest that the central bank may be close to ending its more-than-two-year zero-interest-rate policy.
Still, with the ECB rate hike, going long the euro via FXE and exiting short positions in the ETF seemed like a sensible trend.
Short interest on FXE dropped by more than 40 percent, as our “Really Really Short” table shows, after it doubled in March. The short positions now amount to 126 percent of the ETF’s outstanding long float, down from 183 percent in March.
As noted, not a whole lot changed among the bigger, heavily traded ETFs that are also favored by short-sellers, as our “Big Bets” table shows. Short interest did edge higher last month for the big ETFs, but not by much.
Short interest in the SPDR S&P 500 ETF (NYSEArca: SPY), the world’s biggest ETF, rose 12 percent after edging up 4 percent in March. The percentage of SPY’s short interest is now roughly half of its outstanding long positions, up from 46 percent previously.
The uptick in short interest extended to the developing markets as well, bumping up almost 6 percent on the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM) after falling more than 34 percent last month. However, the percentage of shares short held about steady at 7.6 percent of all the ETF’s outstanding float.
Data is believed to be accurate; however, transient market data is often subject to subsequent revision and correction by the exchanges.
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