Short Sellers Reap $13 Billion on Gaps in Winner-Take-All Market

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(Bloomberg) -- Short sellers are raking in profits by betting against a part of the US equity market overlooked by most investors: small-cap stocks. Most Read from BloombergIndia’s G-20 Win Shows US Learning How to Counter China RiseMeloni Tells China That Italy Plans to Exit Belt and RoadTrudeau Is Stuck in India With Faulty Aircraft After Hearing Criticism From ModiBoss of Failed Crypto Exchange Gets 11,000-Year SentenceEverything Apple Plans to Show on Sept. 12: iPhone 15, Watches, AirPodsThe

The group has seen paper profits of nearly $13 billion this year by wagering on a drop in the prices of small-, micro- and nano-cap shares, according to an estimate by S3 Partners LLC based on the average amount of short positions in the market.

“So much of this year’s performance has been about AI enthusiasm, which disproportionately benefitted the largest tech stocks,” said Steve Sosnick, chief strategist at Interactive Brokers. “It’s been a top-down set of winners so far.” With the shares battered, investors withdrew $1.5 billion from funds focused on the segment last week, the most in nearly three months, according to Bank of America Corp. strategists, citing EPFR Global. By contrast, US large-cap stock funds pulled in $5.5 billion.One reason for the underperformance is sector weightings that have curbed interest as investors focus heavily on particular industries, said Rob Haworth, a senior investment strategist at U.S. Bank Wealth Management.

Morgan Stanley’s Mike Wilson, who has been predicting a stock-market decline, has similarly warned investors to stay away from small-cap stocks, whose profit margins are more highly at risk of being eroded by inflation.

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Short Sellers Reap $13 Billion on Gaps in Winner-Take-All MarketShort sellers are raking in profits by betting against a part of the US equity market overlooked by most investors: small-cap stocks.
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