Short Stories

Data Explorers Short Portfolio: Up 30% in 8 Months

Data Explorers has been monitoring the performance of a portfolio of short stocks selected by our screening tools since 7th June 2007.  The performance of this paper portfolio shows that the average return (calculated on an equally weighted basis opening price to opening price between the date when the story was published and 28th January 2008) was 29.7% per stock compared with a (short) return of 10% in the FTSE All World during the same period.

Total based on alerts since 7th June 2007	30%
Total based on news since 29th October 2007	9%
Overall Total since 7th June 2007	19%
FTSE ALL WORLD since 7th June 2007	10%

Of the thirty-eight stocks in the portfolio, only four have subsequently risen in price since the publication date, namely Yamana Gold, Hagemeyer, Calmaine and Fast Retailing.  Outstanding successes on the short side were: American Home Mortgage (delisted), Erinaceous Group (down 95% since publication), Northern Rock (down 78% since we highlighted it in a report on EMEA banks), Ambac (down 69%), Black's Leisure (down 65%), Martha Stewart (down 59%) and IKB (down 55%).  Download short_portfolio.xls

While some people may find it macabre to examine stocks which have lost so much value, we believe it is important to highlight the fact that stock borrowers (hedge funds and prop traders)came early to many of the themes which have dominated the last eight months, namely subprime, property and retail.  We would also highlight the fact that the cost of borrowing many of the stocks in our portfolio is not taken into account, and nor is the bid-offer spread. Please refer to our disclaimer concerning investment advice.

After 29th October, we began to focus more on stocks which feature in the daily news.  These stocks produced a return of 9% on average between 29th October and 28th January, while the FTSE World index produced a return of 14% in the same period.

If you would like further information about the methodology used to screen for potential short stocks, please contact Alex Hofmann (+44) 207 392 4010 or Email: ah@dataexplorers.com

Short interest heats up in Aga

According to our data, short investors have substantially increased their positions in Aga (AGA). The cooker manufacturer, whose borrow was already quite high in late-October with a % Market Cap on Loan (%MCOL) of 10%, has seen the borrow rise from 10% then to 12% in late December, and since then, from 12% to 17% today.

The company’s share price ebbed and flowed from 440 and 380p between January and October 7^th 2007, and then dropped dramatically from 440p then to 320p today. Investors who increased their positions on October 7^th, when the %MCOL rose from 4% to 12% in under a week, would have made a very profitable trade. The spike in the borrow in the last week has also reflected a further fall in share price – from 360p to 320p. Utilisation has also risen from 35% to 45%, so it is becoming increasingly hard to borrow the stock. The average Utilisation percentage for the rest of the EMEA Consumer Durables and Apparel sector is around 17%. Those who are short Aga, there are 44.51 Days to Cover.

There is no shorting in Smallbone (SML), but you can only borrow 5% of the Market Cap of the fitted kitchen company, with an Availably Quantity of $0.99million. In America, Universal Electronics (UEIC) has become a target for short sellers, with an increase of %MCOL from 2% to 15% in the last year. In the last fortnight, the borrow has gone up from 13% to 15%, with Utilisation rising from 15% on August 7^th to 36% today, 12.5% higher than the rest of the North America Consumer Durables and Apparel sector (trading at 32% latest). There are 26.18 Days to Cover.