What’s the most shorted sector? The answer might surprise you

Are the short sellers telling us that biotech is due for a correction?

What are short sellers doing?


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Will markets go up or down as we move toward summer?

No one knows for sure, but one metric to watch is activity among short sellers — investors who believe a particular security will decline in value. Investors who short a particular stock because they believe they’ve identified some intrinsic problem with the company grab the most attention, but investors with bets on broader ideas also express them with shorts, often using exchange-traded funds.

Short activity overall has recently increased, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. While the biggest, most institutionally oriented ETFs — the SPDR S&P 500 ETF Trust
SPY,
+0.46%

and the Invesco QQQ Trust
QQQ,
+0.64%

— are always the most heavily shorted, Dusaniwsky’s list of the top 25 most shorted ETFs also includes several funds that track sectors of the S&P 500.

With an oil price war and world economies in contraction bringing the energy sector to its knees, it’s a reasonable bet that the energy-sector fund would be most heavily shorted, but that’s not the case. The table below shows all of the sector-specific funds on S3’s list of the domestic ETFs with the largest short interest.

Related:Biggest oil ETF USO’s woes have been real slick for short sellers

Fund name

Short interest % of float

 Short interest 

SPDR S&P Biotech ETF
XBI,
+3.58%
128.10%

 $        6,455,346,324

Financial Select Sector SPDR ETF
XLF,
-0.66%
17.26%

 $        2,796,156,823

Health Care Select Sector SPDR ETF
XLV,
+0.84%
7.86%

 $        1,991,229,760

iShares Nasdaq Biotechnology ETF
IBB,
+2.50%
20.74%

 $        1,775,927,751

Utilities Select Sector SPDR ETF
XLU,
-1.33%
14.33%

 $        1,655,227,415

Energy Select Sector SPDR ETF
XLE,
-0.38%
13.04%

 $        1,303,148,930

Industrial Select Sector SPDR ETF
XLI,
-0.35%
17.59%

 $        1,289,143,730

Source: S3 Analytics

It’s hard to determine why investors are most bearish about these sectors in particular, but it’s noteworthy that biotech has outperformed this year. In the year to date, the SPDR fund in the top slot is up about 7.3%, and is one of only two sector SPDRs with a gain in that period.

What else is among the top 25 on the short-interest list?

An iShares ETF tracking emerging markets
EEM,
-1.36%

has more short interest than one with exposure to companies in Europe, Australia, Asia and the Far East
EFA,
+0.09%
.
The biggest high-yield corporate bond fund
HYG,
+0.14%

has more short interest than the biggest investment-grade corporate bond fund
LQD,
+0.35%
.
And in the 25th slot on the list of heavily shorted ETFs, in a reminder of unsettled geopolitics, is the iShares China Large Cap ETF
FXI,
-1.45%
.

See:U.S.-China relations are bad and getting worse, with major ramifications for trade and investment — and the U.S.’s presidential election

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