It’s only February, but it’s already been a rough year for short-sellers.
Amid a GameStop retail army that has piled in to stocks with high short interest, there have been some bright spots for shorts. Short sellers borrow shares and sell them, then buy them back at a lower price in a bid to profit off of a stock’s decline.
Some short-focused managers are experiencing a strong start to the year, according to data from short-selling research firm Breakout Point.
Wolfpack Research’s bearish report critical of Nasdaq-listed Chinese drone maker Ehang on 16 February saw the shares plummet over 60%. Matthew Wiechart’s Bonitas Research also had an early score, after a sceptical report on 18 February about AgEagle Aerial Systems — another drone producer. The shares subsequently fell over 35%.
Here’s a list of the top short-seller trades so far this year, according to Breakout Point data. (Negative returns are good for a short-seller):
1. Ehang – Wolfpack Research: -51.8%
2. AgEagle Aerial Systems – Bonitas Research: -26.8%
3. Triterras – Phase 2 Partners: -25.8%
4. National Beverage – Grizzly Research: -23.4%
5. Clover Health Investments – Hindenburg Research: -21.3%
6. Beam Global – Mariner Research: -19.3%
7. Eos Energy Enterprises – Iceberg Research: -17%
8. Plug Power – Kerrisdale Capital: -15.9%
9. Lemonade – Citron Research: -15.9%
10. Bit Digital – J Capital Research: -15.9%
Not all short sellers have enjoyed the same level of success. An unparalleled rise in retail investing, fueled by free-to-trade sites such as Robinhood and egged on by posts on social media platforms such as Reddit, has seen money pile into under performing stocks.
Retail favourite GameStop saw its shares soar over 2700%, inflicting sizable losses on some investors caught short, such as Melvin Capital, Point72 and Citron Research. Andrew Left, founder of Citron Research, said on 29 January that his firm will no longer publish bearish reports.
In a note to clients on 19 February Goldman Sachs said that short covering was in full swing in November, following bullish projections about Covid vaccine rollout. The GameStop mania later kicked off a “broad hedge fund de-grossing that weighed on popular hedge fund long positions and the aggregate S&P 500.”
“This tipped a chain of dominoes that led to the largest week of active hedge fund de-grossing since February 2009,” the bank said, adding that the spillover effect caused its Hedge Fund VIP list to decline by 6%, the S&P 500 to dip by 4%, and long-short equity hedge funds to post an average January return of -1.2%.
Breakout Point noted that things have more or less returned to normal on the short covering front after the GameStop frenzy. “Very dominant short covering has cooled down somewhat in the meantime,” Ivan Cosovic, founder of the firm, told Financial News.
In mid-February, he said, “about 57% of disclosures were to notify of reduced percentage short positions, which is not outside of usual weekly deviations”.
Short-sellers typically borrow stock of a target company, then sell these shares in the market, betting that they will fall in value. Their aim is to buy the stock back at a lower price and then pocket the difference, they then return the shares to the lender.
To contact the author of this story with feedback or news, email William Canny