Borrowing of European exchange traded funds by short sellers more than doubled in 2009, according to Data Explorers’ Securities Lending Yearbook.
The most shorted ETF was iShares FTSE 250 tracker, which, on average, had $79m (£51m, €58m) of stock lent out throughout last year. ETFs tracking the DJ EuroStoxx 50 index were also popular with short sellers.
However, the European market still lags well behind the US, where an average of $8.6bn of stock of the SPDR Trust, which tracks the S&P 500 equity index, was on loan at any one time.
Across equity markets, Data Explorers found that utilisation rates of stock available for loan fell last year, a fact it attributed to the downsizing of the hedge fund industry – the traditional home of short sellers – and rising markets, which reduced the scope to profit from taking short positions.
The volume of stock available to borrow also rose through the year. “Beneficial owners spooked by the events at the tail end of 2008 took a while to come back into the market but by the end of 2009 there were signs of returning lenders,” Data Explorers said. “The returns are still important, particularly amongst pension funds who are still, despite the rising markets, affected by underfunding issues.”
As a result, Data Explorers’ Global Long-Short ratio, which compares available inventory to stock on loan, ended 2009 at a record high of 6.34. In spite of this, lending fees for stocks in the S&P 500 rose from an average of 33 basis points a year to 75bps.
Data Explorers speculated fees may have risen to compensate for a fall in income from the reinvestment of collateral.
Alternatively, the figures may have been skewed by an anomaly at Citigroup, where lending fees exceeded 100 per cent for a period last year as arbitrageurs raced to short the common stock and go long preferred shares.
