The more aggressive an investor’s bullish stock positions are, the more cognizant they must be of risk management. With the stock market within a stone’s throw of all-time highs, bullish investors are right to be a bit uncomfortable about going all-in on the stock market.
One of the most popular ways to protect a stock portfolio from a broad-market pull-back is by short selling ETFs. Most popular ETFs all experience some amount of short-selling, but a new report from S3 Research reveals that three particular ETFs are the most popular instruments of choice for hedging bullish bets.
Perhaps it will come as no surprise to learn that the ETF with the highest short position is the most popular S&P 500 Index ETF in the market: the SPDR S&P 500 ETF Trust (NYSE: SPY). According to S3 Research, the SPY ETF had $49.9 billion in short interest as of July 7, 2017.
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After the SPY ETF, the next most heavily-shorted ETF is the iShares Russell 2000 Index (ETF) (NYSE: IWM). The Russell 2000 Index is comprised only of U.S. small-cap stocks. S3 Research reports the IWM ETF currently has $14.6 billion in short interest.
The third most popular hedging ETF is the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ: QQQ). The QQQ ETF provides exposure to the technology-heavy Nasdaq. Short interest in the QQQ ETF is currently around $9.4 billion.
S3 Head of Research Ihor Dusaniwsky said the three ETFs mentioned above have remained the three most popular ETFs among short sellers since their inception.
“The remainder of the top ten shorted ETFs change along with the market—they are comprised of sector, product and regional ETFs that rise and fall in ‘short’ popularity as the need arises,” Dusaniwsky said.
So far this year, investors have had no need for their hedges. The SPY ETF is up 9.8 percent year-to-date, the IWM ETF is up 4.8 percent and the QQQ has surged 20.1 percent.
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