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

Food For Thought -NEW! 12/02/2008

It looks as if food is on the table for short sellers. Our data shows recent rises in short positions in food producers, Domino's (DPZ) and Northen Foods (NFDS).

The Market Cap on Loan and Utilisation for both producers have followed a very similar pattern, (see graphs below). Both retailers have a MCOL around 15% with Nothern Foods topping the table at 17%. The Utilisation of both stocks is nearly 55%.

Food inflation has reached highs of 6%, trumping general inflation in recent months. This is largely due to rising wheat costs. Is there more to come?

So what is the driving force behind these shorts? It is known that price transmission from farmgate to retail lags, is this a factor? If so the question is; has price transmission taken it's full effect and how will these potential rises effect profits and stock prices in the weeks to come?