Bears Pile Into Retail Shorts Ahead of Pivotal Shopping Weekend

(Bloomberg) -- There will be no happy holiday for retailers this Thanksgiving, according to traders of exchange-traded funds.

Short interest in State Street Corp.’s SPDR S&P 500 Retail ETF, ticker XRT, has climbed to the highest since 2017, according to Markit data that calculates positions as a percentage of shares outstanding. XRT’s returns have lagged behind the S&P 500 Index by more than 16 percentage points this year, and traders are ready for lackluster shopping on Black Friday to deliver more pain.

It’s easy to see why: Brick-and-mortar stores are struggling to adapt to a world in which more and more shopping is done online, while a mixed bag of third-quarter earnings has further undermined the sector’s appeal in recent weeks. Some are now looking to capitalize on that weakness.

“Investors may have shorted the ETF due to weak apparel sales and the retail shift to e-commerce,” said Edward Yruma, an analyst at KeyBanc Capital Markets. However, the “consumer is in solid shape,” he said.

Short positions in XRT totaled about $275 million as of Nov. 26, more than the fund manages in assets, according to Markit.

While retailers usually do better than the S&P 500 during Thanksgiving week, “gains appear to be relatively short-lived,” according to a Nov. 25 report from Bloomberg Intelligence. A BI study of retail-focused ETFs last year concluded that these funds usually underperform the broader market between Thanksgiving and New Year’s Day.

To contact the reporter on this story: Ritika Gupta in New York at rgupta219@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rachel Evans, Rita Nazareth

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