Stocks with low institutional holdings outperformed the falling market
As the global economy lurches into bear market territory, we have used securities lending flow data to see if any lessons could be learned, as to which shares fell the most last week. Was it those most loved or loathed by long only funds or by short sellers? We know that, going into this crisis, the volume of short selling was very low compared to recent history but just starting to increase off all time lows. In summary, there is evidence within the large cap universe, that money was saved by owning shares that were slightly less popular with the traditional asset managers since they fell less far. Also, there is a small bit of evidence that more shorted US stocks tended to fall further in the maelstrom.
Global Equities 6 year Long Short Ratio
The Data Explorers LongShort Ratio gives an overall sense of how the scale of short selling is dwarfed by the supply of shares to short (by 9 times) and nowhere near the levels reach ahead of the last credit crisis in 2008. But, it does not tell the whole story as the values (although not the ratio) are impacted by falling global stock prices.
What lessons could be learned from last week regarding which stocks fell the most?
There is a pattern in both the US and European large caps that shows merit in owning shares with comparatively lower institutional ownership.
If you decile the Stoxx 600 and S&P 500 (excluding shares within 20 days of dividend) according to the largest to smallest one week price fall you see a pattern whereby those groups of stocks with the highest relative ownership from funds who lend – tend to fall the most. Money can be saved by owning the less well owned names within these very liquid universes. The pattern is more pronounced in the US.
S&P500 (ex recent dividend names)
Stoxx 600 (ex recent dividend names)
Example shares that fell the least last week and fit the above observation
Shares to short as the markets fell
In both the US and European large cap arenas, there is little pattern connecting price changes last week to levels of short interest. However, you can make a slight case for more shorted US large caps falling further.
S&P500 (ex recent dividend names)
Observations: As with Europe, there is little pattern connecting price changes last week to levels of short interest. Unlike the European names, you can make a slight case for more shorted names falling further. But, even here, the most shorted decile fell the fourth least far in price (decile 7 above).
Stoxx 600 (ex recent dividend names)
Observations: There is little discernible pattern when comparing deciled 1 week price changes with deciled levels of short interest for European large caps. This further reinforces our argument that last week’s price drop had little do with short selling.
