Most shorted sectors: Commercial Services, Retail and Consumer Durables & Apparel

Short sellers are lifting themselves off the floor. According to the Data Explorers US equity Long Short Ratio, short sales are increasing but there remains 12 times more inventory as demand to borrow. We will look at the sectors driving short interest across the S&P 500. Using some subjective filtering of the GICS Industry Groups we find the most directional shorting in the Commercial & Professional Services, Retail and Consumer Durables & Apparel sectors.

Statistically, Semiconductors is the most short sold sector with an average of 5.3% of each firm's shares on loan against an average of 2.8% for the S&P 500. However, this is somewhat misleading for the purposes of finding negative views. Two of the top three most borrowed names (MCHP, XLNX) are partly borrowed to cover short sales due to their convertible bonds rather than an outright view that the firms are overpriced. The third, First Solar (FSLR) has a large directional short, but this may have more to do with alternative energy subsidies than the state of the semiconductor market.

Replacing Semis is a basket of firms who keep the world spinning without making much noise in the process: Commercial & Professional Services. This sector is comprised of 11 stocks and short selling is above average in eight of them, meaning there is widespread negative sentiment. That said, only two show stock on loan to be over 10% – Pitney Bowes (PBI) and Robert Half (RHI). Both of these specialize in areas that, on face value, seem challenged. PBI offer end-to-end mail solutions while RHI is a recruitment firm with core expertise in account temps, risk and legal staff. 

The Retail sector is the next most shorted group of firms with 3.8% short interest overall - and four names over 10%. This group is led by Gamestop (GME) with a substantial 22% of its total shares on loan. Though high, there is actually a recent downward trajectory whereby people have been covering big short positions in the likes of Netflix (NFLX), which has reduced 20% over the past week alone. Also of note are Sears (SHLD) and Tiffany (TIF). Conversely, short interest is generally rising in travel retail companies and there is very recent rise in the percentage of shares on loan in second hand car dealers, such as Carmax (KMX).

Finally, even after stripping out three house builders from the Consumer Durables & Apparel sector, it remains the 3^rd most borrowed sector. This is mainly due to almost double digit short positions in household goods firms Whirlpool (WHR). The apparel makers with significant short interest are VF Corp (VFC) and Nike (NKE), which both see short interest at more than double the index average on loan at 8.8% and 6.4% respectively. As with Asia, it is the middle market firms which appear to suffer from a consumer spending freeze, with low short selling in the luxury brands. This negative sentiment is slowly on the increase here too.

Real Estate would have been 2^nd on this list but is strongly influenced by 11% of total shares being borrowed in Plum Creek Timber (PCL). In order to see the wood for the trees, we remove this and the sector average drops right down from 4.6% to 2.2%.

The question that begs answering concerns a sector we would have imagined would be high up the list. Given so much food inflation on the one hand and the rising oil price, surely funds would be betting against Food & Staples Retailing? With the exception of a massive short in Supervalu (SVU), a mere 2.2% is the average on loan across the sector. Does this mean consumers will be happy to accept price rises when they go shopping at Wal-Mart (WMT) and pay over $5 for Kellogs Cornflakes? Anyone?