Short interest in the S&P 500
Amongst the best performing European indices in January was Spain’s IBEX. This caught some investors by surprise as many have been underweight or shorting many Spanish companies (especially mid-sized banks) for some time. Missing this kind of move is enough to dampen a fund’s monthly returns. We will look at other macro sector views in the US market to identify themes to keep abreast of. Stocks covered include: Tesoro (NYSE:TSO), Noble (NYSE:NBL), Range Resources (NYSE:RRC0, Diamond Offshore Drilling (NYSE:DO), Sara Lee (NYSE:SLE), Supervalu (NYSE:SVU), Vivus (NASDAQ:VVUS), Arena (NASDAQ:VVUS), Cephalon (NASDAQ:CEPH), C R Bard (NYSE:BCR), Cerner (NASDAQ:CERN) and Laboratory Corp of America (NYSE:LH).
No sectors could be described as “crowded” but it is interesting to note the trends. Somewhat surprisingly, US Energy firms show the biggest increase in average short interest over the past three years. There may well be an element of hedging, with investors shorting certain names to counterbalance long positions in this sector but the fact remains that Tesoro, Noble, Range Resources and Diamond Offshore Drilling all have more than 7% of their shares on loan.
Food companies have seen the second biggest rise in short selling over the past few years and this is understandable with food inflation so prevalent. You only have to look at Sara Lee’s (SLE) recent results to witness the impact of rising food prices on the profitability of the sellers of food. Supervalu (SVU) is one of the most shorted in this sector with a huge 19% of its shares on loan. Any food shop specializing in the lowest prices must find the current climate especially challenging.
Number three on the rising short selling list are the Pharmaceutical and Biotech companies. The world remains in dire need of cures for all manner of afflictions and the ageing population means these firms are more sought after than ever before. Unfortunately, curing life’s ills does not come easily and there are plenty of firms in this area which float with amazing product pipelines only to hit FDA rejections as their cures are put to the test. We have covered many firms like Vivus (VVUS) and Arena (ARNA) while the most shorted large cap in this sector at present is Cephalon (CEPH) with 18% being borrowed.
A related sector that also sees rising short interest is the Healthcare Equipment manufacturers. C R Bard (BCR), Cerner (CERN) and Laboratory Corp of America (LH) have around 10% of total shares outstanding on loan. In general, short selling is falling in these names as their prices rocket higher.
We have already noted recently that the Technology Hardware sector are subject to some short selling and this sector has shown the fourth biggest rise over the last three years.
The Banking sector stands out amongst those with declining short interest over the last three years, which is hardly surprising given the recovery since the crisis.
In general, the average stock on loan for these sectors has been declined in 2008 and 2009 but was quite flat last year. The sector with accolade as the most shorted right now is Commercial and Professional Services.
