Short positions against the so-called FAANG group of the largest U.S. technology stocks have surged by more than 40 percent in the past year as investors bet against some of the biggest drivers of the global bull market.
Bearish investors have shorted about $37 billion worth of stocks in the group, which comprises Facebook Inc., Apple Inc., Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc., up 42 percent from a year ago. Amazon leads the way with almost $10 billion in short interest, according to data compiled by Bloomberg as of Aug. 28 from financial analytics firm S3 Partners LLC.
“Tech stocks have had a large run-up in price this year,” Ihor Dusaniwsky, head of research at S3 Partners, said in an email. “The greater the rise, the greater the fall so they are being targeted as the stocks to short. With the bull market possibly entering the backstretch, portfolio managers are bracing for a selloff and increasing their overall market short exposure.”
Investors are piling into FAANG shorts as U.S. stocks continue to breach new records, with the Nasdaq Composite Index surging above 8,000 for the first time Tuesday. The group has accounted for 48 percent of the index’s advance this year, according to data compiled by Bloomberg.
Tech companies overall make up half of the 10 largest short-interest positions in the world, with Chinese e-commerce giant Alibaba Group Holding Ltd. at the top of the list with almost $19 billion worth of stocks short. That is more than double the 19 percent weighting the sector has in the MSCI All-Country World Index of the world’s largest developed and developing market stocks.
One of the biggest non-tech positions on the list is Tesla Inc., which has become a magnet for bearish bets as founder Elon Musk briefly considered taking the electric car maker private before pulling the plug on the idea. Insurer Ping An Insurance Co. of China Ltd. is the highest-ranked non-tech name in the group, the data show.
Here’s why investors may be souring on some of the most successful market plays of the past few years:
Alphabet ( +18 percent stock gain YTD)
Bears are on alert with Google now trying to get back into China, almost 10 years after exiting the world’s second-largest economy over political censorship concerns. The parent of Google and the rest of the FAANG cohort have already seen selloffs this year as investors questioned the persistent rally in the shares, as well as increasing privacy and censorship concerns that have arisen amid an investigation into possible Russian meddling in the U.S. election.
Alibaba ( +3 percent)
It’s been an up-and-down year for Alibaba, with the stock little changed as the Chinese e-commerce giant has pulled back its presence in Silicon Valley amid escalating trade tensions between the U.S. and China. Currently Alibaba’s focus includes its Ele.me food delivery platform, which competes against Tencent-backed rival Meituan Dianping. Both are incurring big losses as they fight for market share in China.
Ping An Insurance ( -7 percent)
Insurance stocks in China have been under pressure this year as premium income has dropped and regulators move to curb financial risks, leaving an opening for bearish investors looking for further downside. In an August interview after the insurer reported its latest earnings, Ping An’s Chief Insurance Business Officer Lee Yuan Siong argued the company’s stock still doesn’t completely reflect the value of its technology segment, or its integrated financial services, which have helped the company dominate in China.