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January 28, 2021 at 02:50 PM
Investors in a couple of ETFs may be surprised to learn that their funds hold 20% of more of their assets in a single stock — the now infamous GameStop.
One of those ETFs, the State Street SPDR S&P Retail ETF (XRT), is equally weighted so any overexposure won’t be corrected until its next rebalancing in March. As of noon on Thursday, GameStop accounted for 19.9% of its assets.
The other ETF, GAMR, the Wedbush ETFMG Video Game Tech, is market cap weighted and GameStop accounted for over 27% of its assets at noon on Thursday.
Both ETFs were down 8% or more at midday Thursday from the day before but were up about 30% year-to-date due largely to GameStop.
Before this year and especially before this week, the video game retailer was regarded as a sleepy — some say failing — mall-based retailer that had attracted short selling by several large hedge funds. Its stock was trading at $21 a share at the end of last year.
Then investors involved in a forum on Reddit, known as WallStreetBets, took on those short sellers through options trades, forcing the hedge funds to cover their shorts and the market makers who had sold the options to the Reddit day traders to buy the stock to hedge those sales. Every tic higher in the stock price attracted more short covering and hedging.
GameStop stock spiked from $65 a share at the close of trading last Friday to over $480 in early trading Thursday before falling about $200 after multiple trading platforms, including Robinhood, Interactive Brokers, TD Ameritrade and Schwab restricted trading of GameStop shares and in some cases also AMC and other stocks experiencing short squeezes.
