Commodity ETFs Used for Shorts

Chidem Kurdas

Exchange–traded fund shares are increasingly used for short selling, in particular in commodity trades. This is in part due to the wider array of commodity ETFs, as well as the availability of their shares for borrowing and short selling.   

People are lending ETF shares for shorting, says Deborah Fuhr, global head of ETF research and implementation strategy at BlackRock. “We encourage long-only investors to do that,” she said, speaking at a conference. BlackRock is one of the three largest players in the ETF market, along with iShares and Vanguard.

Institutional investors have huge holdings of ETFs, which they can turn into a source of revenue by lending the shares.

Hedge funds have been short selling stock index ETFs for many years. Commodity ETF shares are becoming a popular tool now that commodities are seen as offering more trading opportunities.

Net inflows into ETFs were 137 billion last year, pushing US-based ETF assets to around $1.4 trillion. In the past quarter another $42 billion came in. Much of the money is into commodity ETFs, primarily gold and silver. ETFs have become available in less known commodities like platinum and palladium.

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