Experts betting against a bear market for ASX shares

Short-selling of an ASX shares ETF that benefits from bear market conditions has surged over the past three months.

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Key points

  • An increasing number of pro traders have been shorting the BetaShares Australian Equities Strong Bear Hedge Fund over the past three months 
  • The fund hit a new 52-week low on Friday  
  • The value of the fund goes up when the market is falling

Just under 7% of the capital in the BetaShares Australian Equities Strong Bear Hedge Fund (ASX: BBOZ) is currently being short-sold by the experts, according to the latest ASX shares short sale report.

This is a dramatic change compared to three months ago when 0.33% of the stock was being shorted.

The change in short positioning may indicate that some experts think the bear market is over — at least for now.

As we explain in our Education Centre, shorting is not available to most ASX retail investors. Thus, it largely reflects what the pro ASX shares traders think, and which stocks they reckon will fall in value.

That's how you make money from shorting. You bet the share price will fall and you profit if it does.

Why is this bear market ETF being shorted?

To understand why the experts are shorting this bear market ETF, we need to understand the product.

According to the BetaShares Australian Equities Strong Bear Hedge Fund fact sheet, this is an 'inverse ETF'. It invests in cash and cash equivalents and sells ASX SPI 200 futures contracts.

The ETF generates a "magnified positive return" when the S&P/ASX 200 Accumulation Index (ASX: XJOA) falls on any given day, and a magnified negative return when the index rises.

A 1% fall in ASX 200 shares generally delivers a 2% to 2.75% increase for the fund, and vice versa.

Over the past three months, the S&P/ASX 200 Index (ASX: XJO) has risen by 10.5%. So, that explains why an increasing number of experts have been shorting this bear market ETF over the period.

The BetaShares Australian Equities Strong Bear Hedge Fund share price finished at $3.23 on Friday, down 0.62%. It also hit a new 52-week low of $3.20 in Friday's session.

Which other ASX shares are being shorted?

According to the ASX report, these are the top 5 most shorted ASX shares at the moment. Here we show the percentage of issued capital shorted this week:

  1. Global X Ultra Long NASDAQ 100 (ASX: LNAS) 10.9%
  2. Global X Ultra Short NASDAQ 100 (ASX: SNAS) 9.8%
  3. BetaShares Australian Equities Strong Bear Hedge Fund (ASX: BBOZ) 6.9%
  4. VanEck Small Companies Masters ETF (ASX: MVS) 5.2%
  5. Global X US Treasury Bond (Currency Hedged) ETF (ASX: USTB) 5.2%

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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