FYC, the First Trust Small Cap Growth AlphaDEX Fund, heads into July with an unusual split: short sellers have been cutting positions aggressively while the cost to borrow their remaining stake stays stubbornly elevated.
The retreat in short interest has been dramatic. Positions have fallen roughly 70% over the past month, leaving short interest at just 0.14% of the free float — a trivially small level for any instrument. The week alone saw a 53% drop in shares short. At that scale, short positioning is essentially a rounding error and carries no meaningful signal about directional conviction on the fund.
What is more interesting is the borrow market, which tells a different story. Despite the collapse in short positioning, the cost to borrow has barely budged — running near 17.8% annualised, a level it has held in a tight band for most of June. Borrowing costs this high for an ETF with such thin short interest suggest the lending pool is structurally constrained, not reflecting active demand. Availability has loosened considerably over the week, jumping from around 125% to over 500% — meaning there are now roughly five shares available to lend for every one currently borrowed. Yet the 52-week record shows availability touched as low as 6.8% earlier in the year, when the borrow market was nearly fully tapped out. The current loosening is real, but the premium borrow rate has not followed it down.
The fund itself has had a strong few weeks. FYC gained nearly 6% over the past week and is up close to 10% over the past month, closing at $127.34. That performance reflects the broader recovery in small-cap growth names, a category sensitive to rate expectations and risk appetite. No options market activity is registered — the put/call ratio has been flat at zero across the past 30 sessions — so there is no hedging signal to read from that angle. The ORTEX short score nudged up to 52.9 at week's end, after sliding into the low 40s mid-month, but remains squarely in neutral territory.
The most notable near-term data point to watch is whether the cost to borrow normalises as availability has loosened — a persistent gap between ample supply and elevated borrow cost is the tension worth tracking heading into the new week.
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