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

Interesting Ishares

The Ishares Msci Emerging Markets Index Fund (EEM) has historically been the target of short investors, with hedgefunds using them as a way of hedging their emerging markets long exposure. Today, it has a %Market Cap on Loan (%MCOL) of 35%, which compared to normal equities is significantly high (please click to enlarge graph). This is up from 20% in August 2007. This ETF is heavily utilised, with the Utilisation percentage at 78%, and this is a decrease from an average of 93% between August and October last year. The average Utilisation for the rest of the US ETF Market is 40%. 27m shares were traded on January 23rd compared to the average of 3m between August and early December 2007.

In the Ishares S&P 500 Index Fund (IVV) the %MCOL is much lower at 0.75%, down from 3% on November 5th 2007. Utilisation stands at 7%, which is also a fall from 20% in early December. Like EEM, IVV had a higher than average amount of shares traded in late January; 1.8m compared to an average of 0.25m.

Ishare Cdn S&P/tsx Capped Income Trust Index Fund (XTR) has seen an increase in the %MCOL, from 5.5% to 6.6% since mid January. Utilisation is at 38.5%.

In PowerShares QQQ Trust 1, the Utilisation stands at 50%, compared to the average US Equity (Others) Market average of 20%, and in Powershares Wilderhill Clean Energy Portfolio the %MCOL has risen from 3.8% to 5.5% since January 30th.

Powershares Dynamic Consumer Discretionary Sector Fund (PEZ) has a %MCOL of 10%, up from 0% in early January.