As the GameStop Corp. saga continues to play out in markets, the drama has now cost what was an US$800 million exchange-traded fund nearly 80 per cent of its assets.

Investors have pulled roughly US$700 million from the SPDR S&P Retail ETF (ticker XRT) this week, draining total assets to just US$164 million. The outflows come after GameStop’s surge swelled its weighting in XRT to 20 per cent -- given that the fund tracks an equal-weighted index, the video game retailer’s weighting should be closer to 1 per cent.

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Theories abound as to what motivated the outflows, given that they happened alongside a nearly 20 per cent rally in XRT this week alone. One possibility is that because XRT redemptions are delivered in-kind -- meaning that its shares are exchanged for the underlying stocks in the fund --investors are ditching the ETF to get their hands on hard-to-borrow GameStop shares. Others posit that with such a heavy weighting to the highly volatile GameStop, some holders may be choosing to take profit.

Bloomberg Intelligence analysts support the first theory. “GameStop’s surging borrow rates signal high demand for the shares, with short-selling hedge funds potentially seeking to close or adjust positions,” wrote BI analysts James Seyffart and Eric Balchunas in a report Friday. “The in-kind redemption was likely an attempt by investors to get their hands on scarce GameStop shares.”

The cost to borrow GameStop shares climbed as high to 200 per cent this week, and was roughly 50 per cent on Friday, according to data from financial analytics firm S3 Partners.

That’s compounded by the fact that there aren’t many GameStop shares out there. The company has a relatively small float, with just 69.7 million shares outstanding. And with over 100 per cent of the total lent to bears betting against it (shares can be borrowed more than once), that’s created a hunt for shares, according to BI.

But State Street’s Matt Bartolini said that there are likely many motivations at work, rather than the desire for GameStop shares. One consideration is that the hefty GameStop weighting has increased the overall volatility of XRT, leading investors to look for other vehicles for exposure to the retail sector.

“They are more risk-averse investors that are not looking to speculate, who are likely playing some sort of trend that started the year, like the rebound of the economy,” Bartolini, head of SPDR Americas Research, said in a phone interview. “As of result of that price appreciation, that investment thesis has now been distorted.”

Others reckon that the outflows could simply be investors taking profits after an incredible run-up. XRT has gained about 40 per cent in January, on track for its best month ever.

“Anyone who was long XRT BEFORE all this started had a reason. Whatever that reason, it WASN’T to gain from a mechanical pop in a meme stock that happened to be inside,” Dave Nadig, chief investment officer at data provider ETF Trends, wrote in an email. “So it’s pure 100 per cent profit taking.”