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Shorts Love This ETF's Holdings

January 22, 2016 8:16 am
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Global equity market carnage is not playing favorites on a regional basis to start 2016 and plenty of that carnage is being absorbed by U.K. stocks. Over the past month, the iShares MSCI United Kingdom ETF (NYSE: EWU), the largest U.K. exchange traded fund trading in New York, has tumbled more than eight percent.


Not surprisingly, short sellers are loving that trend and plenty are sinking their teeth into some of the 113 stocks held by the $2 billion EWU. In fact, the percentage of shares of FTSE 100 companies on loan to short sellers has been steadily rising.


“The slow start to the year in UK equities has emboldened short sellers to add to their already high positions. The average percentage of shares out on loan across the current constituents of the index now stands at 1.75% of shares outstanding; the highest in at least 18 months and 15% more than at the start of the year,” said Markit in a new research note


Markit notes that 62 members of the FTSE 100, the U.K.'s benchmark equity index, are home to what are deemed “material” short positions or those positions that money managers must publicly disclose. One of the most interesting cases is Royal Dutch Shell (NYSE: RDS-A), Europe's largest oil company by market value.


“On the most extreme end of the scale is Royal Dutch Shell. It currently sees $3.7bn of short positions, yet does not currently feature in publicly disclosed datasets. This is due to individual positions not breaching the 0.5% threshold. However with 4.9% of shares outstanding on loan in B shares and 1.7% in A shares, short interest now stands at a record high for the energy firm battling falling prices,” said Markit.


The two share classes of Royal Dutch Shell combine for about 5.5 percent of EWU's weight. Several other heavily shorted FTSE 100 names are also EWU holdings, including Rolls Royce Holdings Plc, Anglo American Plc, embattled miner Glencore Plc, high-end fashion purveyor Burberry Group and Aberdeen Asset Management Plc. Retailer J. Sainsbury Plc, the most-shorted FTSE 100 member, according to Markit data, is also a member of EWU's lineup.


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