The Short Report

This story features SPDR MSCI AUSTRALIA SELECT HIGH DIVIDEND YIELD FUND, and other companies. For more info SHARE ANALYSIS: SYI

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 6, 2016

Last week saw the rally in the ASX200 start to flatten out in choppy trade before this week failing at 5500.

The feature in recent weeks has been the revival of resource sector (ex gold) interest and a rapid divestment of high yield stocks (and goldminers) as a Fed rate rise draws nearer. On the latter point, we can note something interesting from last week’s shorting activity.

The table below is for stocks and not ETFs but it’s worth noting that jumping in at 7.9% shorted last week from nowhere to be seen previously was the SPDR MSCI high dividend yield ETF ((SYI)). It would appear a hedge fund believes there’s still more downside for yield plays ahead of the December Fed meeting.

Otherwise we note a lot of red on the table below for last week with little green, representing some gradual creep up in net shorts. The only move in excess of one percentage point was for Cover-More Group, which jumped back into the 10% plus table in rising to 11.5% shorted from 9.4%.

It is also notable that very long term 10% plus table member Flight Centre ((FLT)) departed, at least for now, with a drop to 9.5% from 10.3%.

And it’s worth noting that the latest gradual creeper up the table, over a number of weeks, has been sandalwood grower TFS Corp ((TFC)). With another bracket creep move, TFS is now 9.0% shorted.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.7
WOR   14.9
WSA   12.8
MTS    11.6
BAL    11.6
CVO   11.5
MND   11.4

In: CVO          Out: FLT

9.0-9.9%

FLT, AWC, TFC
 
In: FLT, AWC, TFC               Out: CVO                              

8.0-8.9%

BKL, ORI, NEC

In: NEC          Out: AWC, TFC, IGO

7.0-7.9%

IGO, SGM, EHE, DOW, IFL, MYO, WOW, BEN, CAB, SYR, IVC

In: IGO, IVC              Out: NEC

6.0-6.9%

GEM, ACX, SGH, AWE, MSB, PRY, JHC, OSH, GOR

In: MSB, JHC, OSH, GOR                Out: IVC

5.0-5.9%

SEK, UGL, NWS, VOC, PDN, CTD, RIO, IPH, KAR

In: VOC, IPH             Out: MSB, JHC, OSH, GOR, RSG

Movers and Shakers

Travel insurer Cover-More Group ((CVO)) has been hanging around the top of the table now for some time, most likely reflecting make or break renewal negotiations between the company and prospective underwriters that seem to have dragged on and on.

But late last month Cover-More announced the takeover of Travelex Insurances Services, the third largest travel insurer in the US, to be funded by debt and a rights issue. As soon as an company conducts a rights issue, the shorters move in, hoping for a (risk) arbitrage gain by picking up shares at a discount in the issue.

This would likely explain why Cover-More shorts jumped to 11.5% from 9.4% last week.
 

ASX20 Short Positions (%)

To see the full Short Report, please go to this link

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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