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Shorts Pile Into Some Of This ETF's Holdings

November 19, 2015 7:00 am
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With less than two months of trading left in 2015, widely known is the fact that energy is the worst-performing sector in the S&P 500. Glum views of the energy sector are not confined to U.S. markets as plenty of international energy stocks and the relevant exchange traded funds have also sagged this year.


In fact, the iShares Global Energy ETF (NYSE: IXC) has trailed the Energy Select Sector SPDR (NYSE: XLE), the larges energy ETF, by nearly 200 basis points this year. IXC's name implies it is a global ETF, but over 59 percent of the fund's weight is allocated to U.S. stocks. Some IXC's ex-U.S. holdings have recently become favorite targets of short sellers.


For the weekend ended Nov. 16, “worldwide borrow balances extended their three week trend and fell over $22 billion. Borrow return activity was widespread with 70% of all sectors showing reduction in borrow balances and only three sectors showing increases over $500 million,” said S3 Partners Managing Director of Research Ihor Dusaniwsky in a new research note. S3 Partners is a financial analytics company that provides data, analytics and services to asset managers and financial intermediaries.


According to S3 Partners data, one of the few sectors that saw borrowing by short sellers top $1 billion for the aforementioned period was integrated energy. The data indicate that two of the stock short sellers are sinking their teeth into are European energy giants Royal Dutch Shell Plc (NYSE: RDS-A) and Statoil ASA (NYSE: STO). 


The New York-traded shares of Shell, Europe's largest oil company by market value, and Statoil, Norway's state-controlled oil company, are down 24.5 percent and 11.9 percent, respectively, year-to-date. S3 data indicate that short sellers may have traded out of another sub-segment of the energy space to go after big integrated oil names. Short sellers returned more than $1 billion worth of borrowed shares in oil and gas storage and transportation names for the week ended Nov. 16, according to S3 data. 


IXC has not been done any favors this year by Dow components Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX). Those stocks, which combine for over 23 percent of IXC's weight, are two just nine Dow stocks down at least five percent this year. Shell and Statoil combine for about eight percent of IXC's weight.

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