sarwesh

In contrast to the obvious relevance of this question when it is asked
about a common stock in the context of short selling, who owns the
ETF shares outstanding should not matter very much to the ETF investor
or to the risk manager who would sell ETF shares short. The opportunity
to increase ETF shares outstanding, literally at a moment’s notice,
makes current ETF shares outstanding largely irrelevant from a trading
or risk management perspective. Nonetheless, knowing something
about the composition of the shareholder population and the effect of
short sales on share ownership can help traders better understand the
ETF market and ETF share-borrowing and -trading costs.
A typical large-capitalization common stock without significant
insider holdings may show institutional investors accounting for 70% to
80% of its share capitalization. This institutional shareholder data can
be accumulated from 13-F reports and similar filings with the Securities
and Exchange Commission. The institutional share of ETF ownership
varies widely among the funds, but most ETF 13-F summaries show
institutional shareholdings in the 20–40% of ETF capitalization range,
far below the institutional holdings in most of the U.S. common stocks
held by the typical ETF.9
When the ETF institutional shareholder numbers are viewed relative
to the typical large ETF’s short interest, the relatively low ETF institutional
ownership is almost surprising. With the short interest running
about 2% of shares outstanding in the average common stock, it is not
important that 2% of shares may be reported twice because one institution
has lent its shares to a short seller and the shares have been purchased
by another reporting institution. With a two percent short
interest, double counting all or part of the short interest in the 13-F
reports does not affect the reported institutional ownership of most
common stocks very much because the short interest is such a negligible
part of the total stock capitalization. However, the large short interest
in many ETFs affects the reports considerably because all shares that
have been sold short appear as long positions in two investor portfolios.
Consequently, the ETF institutional ownership percentage reflected in
the 13-F reports is overstated as a percentage of total shares. For example,
if the short interest is reported at, say, 55% of capitalization, the
number of shares shown on the books of all holders of the ETF’s shares
will total 155% of the number of shares outstanding. If the 13-F reports
show that institutions hold 45% of the shares outstanding in the ETF