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5 Most Heavily Shorted ETFs So Far This Year

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After a strong comeback this year, U.S. stocks have been caught in rough trading lately on fears that the Fed will keep raising rates for longer than expected. The situation has led short sellers to take advantage of the rise in stock prices early in the year and then the decline through shorting.

Shorting is the process of borrowing a security, selling it immediately and then buying it back at a later date -- preferably at a lower price. If done correctly, shorting is the way to profit from a decline in the price of a security.

As such, traders are betting big against some of the zones like retailers, regional banks, corporate bonds, homebuilders and biotech through ETFs, according to ETF.com. SPDR S&P Retail ETF (XRT - Free Report) , iShares BBB Rated Corporate Bond ETF (LQDB - Free Report) , Dimensional US Large Cap Value ETF (DFLV - Free Report) , SPDR S&P Regional Banking ETF (KRE - Free Report) , and SPDR S&P Homebuilders ETF (XHB - Free Report) have seen higher short interest.

Short interest is the number of shares that have been sold short and remain outstanding. When expressed as a percentage, short interest is the number of shorted shares divided by the number of shares outstanding. An increase in short interest often signals that investors have become more bearish and expect a fall in the price of an ETF.

Most of these ETFs have logged in solid gains so far this year but may see huge declines in the weeks ahead with the change in market sentiment.

SPDR S&P Retail ETF (XRT - Free Report) – Short Interest: 309.2%

SPDR S&P Retail ETF has delivered returns of 13% so far this year on optimism over the resilient economy and has the largest short interest percentage of all ETFs. SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid-and small-cap retail stocks. It holds well-diversified 94 stocks in its basket. SPDR S&P Retail ETF is well spread across various industries with a double-digit allocation each in automotive retail, apparel retail, specialty stores and Internet & direct marketing retail (read: 5 ETF Losers of Last Week to Resume Rally on Fed Minutes).

SPDR S&P Retail ETF is the largest and most popular in the retail space, with AUM of $423.6 million and an average trading volume of 4.8 million shares. It charges 35 bps in annual fees and currently has Zacks ETF Rank #1 (Strong Buy).

iShares BBB Rated Corporate Bond ETF (LQDB - Free Report) – Short Interest: 71.55%

iShares BBB Rated Corporate Bond ETF has lost most of its gains over the past month as renewed fears of longer-than-expected rates accelerated short selling. LQDB is up just 1% so far this year. iShares BBB Rated Corporate Bond ETF offers exposure to a diversified portfolio of BBB-rated corporate bonds and follows the iBoxx USD Liquid Investment Grade BBB 0+ Index. It holds 614 bonds in its basket with an average maturity of 10.45 years and an effective duration of 6.77 years.

iShares BBB Rated Corporate Bond ETF has accumulated $24.8 million in its asset base and trades in an average trading volume of under 500 shares. It charges 15 bps in annual fees and has a Zacks ETF Rank #3.

Dimensional US Large Cap Value ETF (DFLV - Free Report) – Short Interest: 67.8%

Value stocks tend to hold up better in a rising rate and high inflation environment. With the inflation moderating and the Fed being less aggressive than the last year, these stocks lost shine. Dimensional US Large Cap Value ETF is an actively managed ETF and has gained about 3% so far this year. It holds 273 stocks in its basket, with key holdings in financials, healthcare, energy and industrials (read: 3 Ultra-Cheap Value ETFs for Long-Term Investors).

Dimensional US Large Cap Value ETF charges 22 bps in fees per year and has gathered $326.9 million in its asset base since its inception in December. It trades in a volume of 226,000 shares a day on average.

SPDR S&P Regional Banking ETF (KRE - Free Report) – Short Interest: 61.1%

The banking sector has lost its sheen due to the inversion of the yield curve, which is negative for the stocks in this sector. SPDR S&P Regional Banking ETF has gained 4.6% so far. It provides exposure to the regional banks segment by tracking the S&P Regional Banks Select Industry Index. It holds 144 stocks in its basket, with each accounting for no more than 2.3% of the assets.

SPDR S&P Regional Banking ETF has AUM of $2.4 billion and charges 35 bps in annual fees. It trades in an average daily volume of 6.6 million shares and has a Zacks ETF Rank #4 (Sell) with a High-risk outlook.   

SPDR S&P Homebuilders ETF (XHB - Free Report) – Short Interest: 57.2%

Though builder confidence has risen to the highest level since September 2022 and mortgage rates have been trending downward from a peak since November, housing affordability is still at multidecade lows. U.S. existing home sales declined for a record 12 straight months through January. This has made traders short sell homebuilding ETFs like SPDR S&P Homebuilders ETF, which is up in double-digits so far this year. It provides exposure to homebuilders with a well-diversified exposure across building products, home furnishing, home improvement retail, home furnishing retail and household appliances. SPDR S&P Homebuilders ETF tracks the S&P Homebuilders Select Industry Index, holding 35 stocks in its basket (read: Here's Why Housing ETFs Are Up in 2023 Despite Soft Sales).

SPDR S&P Homebuilders ETF is the most popular option in the homebuilding space, with AUM of $898.6 million and an average daily volume of 2.2 million shares. The product charges 35 bps in annual fees and has a Zacks ETF Rank #4 with a High-risk outlook.

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