Short Selling Rout: 92% Of ETF Shorts Were Unprofitable In The Last Month

Short selling has become vastly unprofitable since the broad stock market rally began in late October, according to data compiled on short positions in global exchange traded funds (ETFs).

Data from S3 Partners published on Thursday shows that U.S. equity ETFs were the most exposed, and the SPDR S&P 500 ETF (NYSE:SPY), which tracks the S&P 500 index, was the most heavily shorted fund, and also the least profitable.

In total, 92% of all ETF shorts were unprofitable and 98% of every dollar shorted was an unprofitable trade in the past 30 days.

“Institutionally, ETFs are primarily used as portfolio hedging vehicles, so one can expect that in an upward trending market most of the larger ETF short positions would have negative returns,” said Ihor Dusaniwsky, managing director of predictive analytics at S3.

Also Read: November Rally Sets Treasury Bonds On Track For Best Month In 40 Years

Least Profitable ETFs

SPY held average short interest positions of $53.7 billion and saw the biggest increase in short covering as traders were forced to redeem shares in the ETF at a loss. SPY short sellers lost a total $5.5 billion in the past 30 days, or 10% of the total average short positions, as the ETF rose 11.2% since October 27.

Next in line, the Invesco QQQ Trust ETF (NASDAQ:QQQ), known for offering exposure to tech stocks in the NASDAQ 100, was also among the least profitable options for short sellers. selling on QQQ lost $3 billion in dollar terms, or 12% of the total average short interest, as the ETF gained 14% since October 26.

Technology stocks, particularly heavyweights such as Microsoft Corp (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) have driven the equity rally, with MSFT reaching a series of new all-time highs in the past few days.

The third-least profitable ETF for short sellers was the iShares Russell 2000 ETF (NYSE:IWM), which tracks the Russell index of smaller companies. IWM short sellers lost $1.6 billion as the index climbed 10% this month, as optimism over the interest rate environment prompted investors to back smaller companies.

Most Profitable ETFs

ETFs with the least exposure to the equity market rally provided the best ground for profit for short sellers in the past month. These included specialty short or bearish interest ETFs and oil and gas related products.

Short sellers won a combined $221.9 million on the Proshares Ultrapro Short QQQ ETF (NASDAQ:SQQQ) — the biggest winner over the month.

The next two were ETFs that track the VIX index which, in recent days, has fallen to pre-pandemic lows — these made a combined profit of close to $200 million.

Now Read: Big-Tech Rally Continues: S&P 500 Could Return 11% In 2024

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