Short interest in domestic equities, mutual funds and ETFs has increased by $123.8 billion, or 15.85%, in 2019 to reach $905 billion, according to S3 Partners. The most shorted equity sectors currently are Information Technology, Health Care, Consumer Discretionary, Industrials and Financials, according to a Sept. 25 2019 note from the financial technology and analytics firm.

Sector-wise short interest analysis reveals which sectors traders believe are the weakest and are choosing to target. The sectors with the greatest increases in short interest from the start of the year are Health Care, Information Technology, Industrials, Communication Services and Consumer Discretionary.

Sectors With Biggest Short Interest Increase in 2019
Sector Short Interest Increase Since Jan. 1, 2019 Short Interest % Change Since Jan. 1, 2019
Health Care $26.7 billion 30.45%
Information Technology $21.7 billion 18.66%
Industrials $14.4 billion 21.87%
Communication Services $13.6 billion 26.46%
Consumer Discretionary $13.4 billion 13.81%
Source: S3 Partners

The five sectors with the greatest increases in short exposure by percentage are Health Care, Consumer Staples, Real Estate, Communication Services and Industrials.

Health Care is the sector with the greatest short exposure increase this year in terms of percentage and dollar value. After being the best performing S&P 500 sector of 2018, it has lagged this year partly due to policy-related concerns. Issues like surprise medical billing and skyrocketing drug prices have drawn the attention of regulators and 2020 presidential candidates. Since August 25, investors have bet $4.68 billion against the sector, with shares in Bristol-Meyers Squibb (BMY), Abbvie Inc (ABBV) and Allergan PLC (AGN) being targeted the most.

The S&P 500 Consumer Staples sector, which tends to do well when there is uncertainty about the economy, is up 20% this year. The sector has seen the second-highest short interest percentage increase this year, probably due to valuation concerns.

"The sector’s relative safety has prompted investors to push valuations to above-average levels, although the price-to-earnings ratio isn’t yet near past peaks," said the Schwab Center for Financial Research days ago. "Competition has accelerated due to the growth of low-cost emerging-markets’ production. This could hurt pricing power in the sector by compressing margins and squeezing earnings. Also, while the sector could benefit in the near term from trade uncertainty, as investors seek perceived safer havens, if trade conflicts drag on and escalate, costs could rise for American producers and increase prices for consumers. This could dent already-slim margins in much of the space."

Since August 25, investors have bet $1.47 billion against the sector, with Proctor & Gamble Co (PG), Wal-Mart Stores (WMT) and Brown-Forman Corp. (BF-B) seeing the greatest surges in short exposure.

Financial Securities "Sector" 

Investors also tend to use financial products like ETFs and mutual funds to bet against a sector or index or as part of a portfolio hedging strategy. Together such products account for $154 billion in short interest, up 1.16% this year.

Since August 25, they have attracted $3.43 in short interest with the Utilities Select Sector SPDR Fund (XLU), SPDR DJIA ETF (DIA) and iShares Core MSCI EAFE ETF (IEFA) being the biggest targets.