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* Assets in "short" sterling ETFs fall to 2 1/2-year low
* ETF investors taking contrarian view: ETF Securities
* "Long" sterling assets hit 4-year peak
By Atul Prakash
LONDON, Oct 10 (Reuters) - The British pound's slide to a31-year low against the dollar on Friday came as one gauge ofmarket sentiment showed that some investors were actually morepositive on the currency's outlook than they have been foryears.
The value of assets managed by exchange-traded funds thatallow investors to bet on a weaker pound fell to a 2 1/2-yearlow on Friday, continuing a trend that began just afterBritain's June 23 vote to leave the European Union.
Similarly, the value of assets held in ETFs allowinginvestors to go "long" the pound, or bet on its strengthening, rose to the highest in almost four years, figures provided byETF Securities on Monday showed.
Graphic: Long/short sterling ETFs: http://reut.rs/2e8eBtC
That contrasts with the currency market at large, which hastaken fright at what Brexit might mean for the British economy.Sterling fell below $1.20 in increasingly volatiletrade last week, and speculators on Chicago futures markets haveamassed record bets against the pound.
"We are witnessing a clear contrarian trading behaviour,"said James Butterfill, head of research and investment strategyat ETF Securities. "It seems a lot of (ETF) investors are ofthe view that sterling has bottomed or hovering near the bottomand a 'hard Brexit' is already priced in."
Total assets held by ETFs allowing investors to"short" or sell the pound fell to $51.1 million on Friday, downfrom $280 million on June 23 and the lowest since March 2014.
The assets in "long" sterling ETFs were worth $39million, the highest since November 2012, according to ETFSecurities, which says it has a 99 percent share in the Europeanforeign exchange ETF market.
ETFs are popular among retail investors who otherwise findit expensive to short currencies or take part in complex tradesthat often require derivatives and leverage.
ETF Securities' currency exchange-traded products are basedon Morgan Stanley's foreign exchange indices, and use forwardcontracts and swaps to replicate the performance of theunderlying index.
These sums are relatively tiny, however, compared with thevalue of currency futures contracts traded on the ChicagoMercantile Exchange.
Data published on Friday showed that speculators such ashedge funds increased their net short sterling positions on theCME to a record 97,572 contracts in the week to October 4.That's worth around $8 billion.
Those positions don't capture the selling early on Fridaymorning in Asia, when the pound plunged as low as $1.1491 beforerecovering. On Monday, it was changing hands around $1.24. (Reporting by Atul Prakash and Jamie McGeever; Graphic byVikram Subhedar; Editing by Larry King)