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ETF short positions

 
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arthur
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PostPosted: Thu Oct 21, 2004 6:34 am    Post subject: ETF short positions Reply with quote

ETF short interest off March highs
But investors boost shorts of tech, small caps

By John Spence, CBS MarketWatch.com
Last Update: 1:12 PM ET Oct. 13, 2004

BOSTON (CBS.MW) - If short interest in exchange-traded funds is an accurate measure of skepticism in the market, investors are less bearish on U.S.-listed stocks in general now than they were earlier this year.

Deborah Fuhr, an analyst at Morgan Stanley, reports that short interest in U.S.-listed ETFs in Sept. fell to 586 million shares, or 18.5 percent of ETF shares outstanding, from 715 million shares or 25.7 percent in March.

Short interest is often used as a yardstick for investor sentiment on equities.

Since index-linked ETFs trade like stocks, investors can bet on a market downturn by borrowing shares and going short. Additionally, ETFs, unlike regular shares, are exempt from the up-tick rule, so some investors use them for long/short and hedging strategies.

The uptick rule prevents investor from shorting stocks if the prior price move was down.

Short interest in company shares usually averages about two percent of market capitalization, but the typical ETF has much more, Fuhr said.

In terms of the number of shares, the Nasdaq-100 Cubes (QQQ: news, chart, profile) are the most-shorted ETFs, with about 241 million shares, or roughly 40 percent of shares outstanding, according to Morgan Stanley.

The S&P 500 SPDRs (SPY: news, chart, profile) are next on the list with short interest of more than 93 million shares, or 23 percent.

However, when measured as a percentage of shares outstanding, the iShares Lehman 20+ Year Treasury Bond Fund (TLT: news, chart, profile) has a whopping 235 percent of shares outstanding in short interest.

Investors have also been shorting small-cap ETFs - the level of short interest in the iShares Russell 2000 (IWM: news, chart, profile) is about 77 percent of the shares outstanding, or more than 35 million shares.

Although generally ETF short interest has been declining, in technology sector it has been going in the opposite direction, said Ireland.

For example, short interest in the Technology Select Sector SPDR (XLK: news, chart, profile) has been increasing. In September short interest in the fund was 13.5 percent of shares outstanding, compared to 9.7 percent in July.

Subscribe to the ETF Trader, written by well-known mutual fund and sector investor Jim Lowell. Follow CBS MarketWatch's first investment letter exclusively dedicated to your success with exchange-traded funds.
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