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No, not that kind of shorts

As market turbulence increased over the past few weeks, short selling of exchange-traded funds – that is, bets from investors who believe share prices will decline – has jumped, by $1.1 billion, according to a report out Wednesday.

But perhaps more interesting is which funds are being sold short the most. The report, from S3 Analytics’ Ihor Dusaniwsky, shows patterns over time, and hints at the themes investors are likely to win, and which will be out of favor.

As a reminder, ETFs are a popular way for short sellers to make their bets, because they offer exposure to an idea (an asset class, a geographical region, an industry, a theme) without the need to select individual stocks.

A few highlights from Dusaniwsky’s report:

Short sellers are increasing their exposure to technology stocks (Nasdaq via the QQQ) and the broader smaller cap market (Russell 2000 via the IWM) but dialing back their exposure to the broad-market S&P 500.

Short interest in the SPDR S&P Biotech ETF (XBI) is down. “Shorts may be exiting their positions as COVID-19 vaccines and antivirals are getting closer to fruition,” Dusaniwsky noted. But the SPDR Health Care Select Sector ETF (XLV) saw more short selling, “due to the possibility of increased oversight and cost cutting regardless of which party wins the upcoming election,” he wrote.

Investors aren’t just looking for stocks to short. They “have been active in the Spider Gold Trust ETF (GLD) with +$289 million of additional short selling over the last 30 days,” Dusaniwsky wrote.

The ISHS Russell 2000 ETF (IWS) a tracker of small-cap stocks, has seen the biggest increase in shares shorted over the past 30 days – $1.29 billion – and has the largest short interest float, of 38.6%.

Excluding the broad stock market funds, the ETF with the biggest decrease in short interest over the past 30 days is the SPDR Utilities Select Sector ETF (XLU) down $307 million.

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