The most heavily shorted exchange-traded funds in the stock market seem to be likely targets for Wall Street’s skeptics, or those who try to make money by betting that stocks will go lower.
They include the SPDR S&P Retail ETF, a collection of 94 key retail stocks that is currently sold 525% short; the VanEck Vectors Semiconductor ETF, a 25-stock fund tracking the world’s top chipmakers that is sold 140% short; and the SPDR S&P Oil & Gas Exploration & Production ETF, which holds 64 drilling and refining stocks and is sold 117% short.
Yet these funds are also soaring. Year to date, the retail ETF is up nearly 11%; the semiconductor ETF made a fresh 52-week high on Monday and has gained almost 30%; and the oil ETF has climbed more than 20%.
How is this possible? Some, like Adviser Investments Chairman Dan Wiener, attribute the contradictory action to low trading volumes in the broader stock market. Last week, the New York Stock Exchange saw its lowest volume since December.
“This market has either reached new highs or … almost has reached new highs, and yet there’s very low volume,” Wiener said Monday on CNBC’s “ETF Edge.” “People seem to be a little bit more bearish. They’re certainly not running with the bulls and buying with abandon. You have a big short position, it means somebody’s hedging, or a lot of somebodies are hedging.”
That could explain the rise in the retail ETF, also known as the XRT, whose 525% short position could be a result of bearish options trading and securities lending, ETFTrends.com editor and proprietor Tom Lydon said in the same interview.
“Big-box retailers are getting unloved in a big way,” Lydon said, adding that “fortunately, earnings are good so far” this quarter. “We’re going to continue to see more of this, especially as this market gets higher. The question is: Can these companies continue to bring profitability?”
The XRT traded in the $45 range on Monday, ending trading relatively flat. The semiconductor ETF, known as the SMH, fell slightly after making its yearly high. The oil and gas ETF lost more than 1 percent.
The SPDR S&P Retail ETF (XRT) was trading at $45.35 per share on Tuesday morning, up $0.08 (+0.18%). Year-to-date, XRT has gained 0.66%, versus a 9.22% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of CNBC.