Short Stories

Stock lending in the FTSE 250 outstrips the FTSE 100

Stock borrowing in the FTSE 250 continues to outstrip the FTSE 100, a trend which began in July 2007 and shows no signs of abating (click on the attached chart for details.)  In July 2007, 4.2% of the Market Cap (%MCOL) of the FTSE 100 and FTSE 250 was on loan but since then, lending in the FTSE 250 has risen to 6.6% while lending in the FTSE 100 has fallen slightly and currently stands at 4.06%

These figures would suggest that there is very little sign of midcaps coming back into favour any time soon.  Lending in the FTSE 100 has picked up in 2008, but not as fast as the FTSE 250. 

In the US, mid and smallcaps (as represented by the Russell 2000) still show considerably higher levels of borrowing than the S&P 500 which we first reported back in July 2007.  In the Russell 2000, we saw  Utilisation levels rise from 27% in February 2007 to 38% in August.  But since then, Utilisation levels have fallen slightly to just under 35%.  In the S&P 500, Utilisation levels have oscillated between 6% and 8% during the same period.  However, since Jan 1st 2008 utilisation levels in the S&P 500 have risen from 6.2% to 7.35%.  Utilisation in the Russell 2000 has remained flat during this period.

To summarise, stock borrowers have been increasing their positions in UK mid- and largecaps and US largecaps, but not the Russell 2000 in 2008.  (AH)

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