Photographer: Alessia Pierdomenico / Bloomberg
Photographer: Alessia Pierdomenico / Bloomberg
As the GameStop Corp. saga continues to play in markets, the drama has now cost an $ 800 million bursary fund nearly 80% of its assets.
Investors extracted approximately $ 700 million from the SPDR S&P Retail ETF (ticker) XRT), which reduces total assets to just $ 164 million. The outflow comes after the rise of GameStop increase its weight in XRT to 20% – since the fund maintains an equally weighted index, the weight of the video game trader should be closer to 1%.
There are many theories about what motivated the outflow, as it occurred in XRT alone this week by almost 20%. One possibility is that investors are exchanging the ETF, which means that the shares are exchanged for the underlying shares in the fund, that investors are letting the ETF down to borrow hard-hitting GameStop shares. Others believe that some containers with such a heavy weight prefer the very volatile GameStop to make a profit.
Analysts at Bloomberg Intelligence support the first theory. “The rising lending rates of GameStop indicate high demand for the shares, with hedge funds selling short, potentially attempting to close or adjust positions,” write James Seyffart and Eric Balchunas, BI analysts. reported Friday. “The redemption in kind was probably an attempt by investors to get hold of rare GameStop shares.”
The cost of borrowing GameStop shares rose to 200% this week, and according to data from financial analysis firm S3 Partners, it was around 50% on Friday.
This is exacerbated by the fact that there are not many GameStop shares. The company has a relatively small fleet, with only 69.7 million outstanding shares. And with more than 100% of the total amount lent to cattle (shares can be borrowed more than once), it is, according to BI, a hunt for shares.
But State Street Matt Bartolini said there are likely to be many motivations at work, rather than the desire for GameStop shares. One consideration is that the solid GameStop weight increased the overall volatility of XRT, leading investors to look for other vehicles for exposure to the retail sector.
“These are more risk-averse investors who do not want to speculate, and probably a kind of trend that started the year, such as the upswing of the economy,” Bartolini, head of SPDR Americas Research, said in a telephone interview. “As a result of the price increase, the investment thesis is now distorted.”
Others reckon that the outflow could be mere if investors make a profit after an incredible run-up. XRT rose about 40% in January, on track for its best month ever.
“Anyone who started it long before it all had a reason. Whatever the reason, it was NOT from a mechanical doll in a meme share that happened to be inside, ‘Dave Nadig, chief investment officer of data provider ETF Trends, wrote in an email. “So it’s pure 100% profit.”