The Short Report

This story features MYER HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: MYR

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Week ending October 22, 2015.

Last week saw the ASX200 meandering rather aimlessly between 5200 and 5250, seemingly searching for a reason to continue rallying. That reason was provided by the ECB, hence we’ve seen 5350 in the interim, but we have since been drifting back once more.

Shorting activity was mixed and fairly minimal during the meandering week as one might expect, although there were a couple of exceptions.

Fibre company Vocus has announced a second merger, this time with M2 Telecom, and its shorts jumped materially last week.

The big mover was nevertheless funds manager Perpetual, which has suddenly appeared in the 9% bracket having not been seen on the 5% plus table previously. This sort of sudden and sizeable move always makes me suspicious of a potential blip in ASIC’s reporting, so we will need to wait until next week to see whether this move is confirmed.

Meanwhile, Myer has regained second spot on our table.
 

Weekly short positions as a percentage of market cap:

10%+

MTS    21.9
MYR   18.6
SGH    17.2
MND   15.5
ORI     14.4
FLT     14.3
DSH    13.8
MIN    13.5
PRY    13.0
CAB    12.9
AWE   12.0
JBH     11.9
GXL    11.3
GEM   11.2
SUL    10.4
WOR   10.4
SEK    10.0

In: WOR        

9.0-9.9%

PPT, MRM, ARI, AWC, NEC, WOW, VOC
 
In: PPT, ARI, VOC                Out: CDD, UGL                    

8.0-8.9%

CDD, UGL, MGX, FMG, IVC, WSA, STO

In: CDD, UGL           Out: ARI, MSB

7.0-7.9%

MSB, RFG, KAR, ALQ, WHC

In: MSB                      Out: PRG, NVT

6.0-6.9%

NVT, SPO, NWH, PDN, KCN, GWA, BKN, DLS, SVW

In: NVT, SVW                       Out: VOC, TFC

5.0-5.9%

TFC, NWS, CAR, SWM, SXY, AAC, SGM, NXT, IFL, BOQ, SGN, IMF, ILU, VRT, SYR, OFX, CVO, AAD, JHC, TEN, CQR

In: TFC, BOQ, ILU, VRT, OFX                   Out: SVW, CVO, AAD, JHC, TEN, CQR

Movers and Shakers

After a brief respite in which it appeared a chunk of Myer ((MYR)) shorters decided it was time to take some profits, short positions in the stock began to rise again the week before and last week jumped another 1.8 percentage points to 18.6% from 15.8% to put Myer back into second place.

The stock enjoyed a sharp rally last week after it announced the CEO’s remuneration metrics would now include a sales per square metre assessment, but it appears the rally was not due to short-covering.

Fibre company Vocus ((VOC)) had spent some time at the higher end of our 5% plus table when it moved to takeover peer Amcom, opening up a typical pairs trade opportunity, but on completion the stock had been drifting back down the table. Vocus has since announced a merger with M2 Telecom ((MTU)) and Vocus shorts last week jumped 2.3ppt to 9.0% from 6.7%.

Last week saw funds manager Perpetual ((PPT)) announce the September quarter had seen a net outflow of funds, but this is of no surprise given the market correction suffered in the quarter. The good news was the company received a nice new, sizeable management mandate.

The stock drifted upwards during the week with the market, as one would expect from one of the most highly market-correlated stocks, but for some reason Perpetual shorts jumped from outside our 5% plus table straight to 9.7%.

Or the ASIC data is erroneous. We will have to wait and see.

Finally, a nod to infrastructure and environmental contractor Cardno ((CDD)), which saw an increased offer price from its private equity suitor last week and a subsequent 1.1ppt decrease in shorts to 8.6% from 9.7%.

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position "naked" given offsetting positions held elsewhere. Whatever balance of percentages truly is a "short" position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, "short covering" may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to "strip out" the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option ("buy-write") position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a "long" position in that stock.

Another popular trading strategy is that of "pairs trading" in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a "net neutral" market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are "short". Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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