It is no secret Exchange Traded Funds (ETFs) have become a significant part of the portfolio of a growing number of hedge fund managers.
They provide an easy and quick way to gain exposure to a specific industry, foreign market or slice of the U.S. market. ETFs are also widely used by hedge funds and other institutions to hedge, either by shorting or buying put options.
The Credit Suisse Quantitative Equity Research recently put out a report that identified the ETFs with the highest hedge fund ownership and those that are most heavily shorted.
According to their analysis, The SPDR S&P OIL & Gas ETF and SPDR S&P Retail ETF have the greatest percent of their shares held by hedge funds. Interestingly, these ETFs also have the greatest percentage of shorts.
About 30 percent of the shares of The SPDR S&P Oil & Gas ETF are currently held by hedge funds. About 19 percent of SPDR S&P Retail ETF’s shares are held by hedge funds, according to Credit Suisse.
Rounding out the top holders list among hedge funds and the percentage of the shares held by hedge funds: GDX Market Vectors Gold Miners (14 percent); IShares DJ US Real Estate (13 percent); SPDR KBW Regional Banking ETF (12 percent); and SPDR S&P Homebuilders ETF (12 percent).
Credit Suisse does not know how many shares only hedge funds have shorted among the ETFs. However, it does identify the funds that have the greatest number of shares short as a percent of shares outstanding, no matter who is doing the shorting.
SPDR S&P Retail ETF is currently the most heavily shorted ETF, with 693 percent of the shares outstanding. Credit Suisse also figures it would take 8.7 days to fully cover the short position based on average daily volume.
How can an ETF have more than 100 percent of its shares short? Credit Suisse explains that in general, ETF shares that have been borrowed for a short transaction can be lent repeatedly.
In any case, SPDR S&P Oil & Gas ETF is the second most heavily shorted stock, accounting for 406 percent of the shares outstanding. It would take 8.1 days to cover this short position.
Rounding out the seven most heavily shorted ETFs as a percent of outstanding shares: SPDR KBW Regional Banking (270 percent, 22.2 days); IShares Russell 2000 (133 percent, 4.4 days); IShares DJ US Real Estate (84 percent, 7.6 days); SPDR Consumer Discretionary (65 percent, 5.7 days); and SPDR Materials (62 percent, 2.5 days).
