In this update, we identify the most shorted stocks, most shorted ETFs, short squeeze candidates, short selling activity by the Canada Pension Plan, sell recommendations from an independent investment-research firm, recent academic research, and stocks targeted by activist short sellers.
The main data source was S3 Partners (more details in the end note).
For the most shorted Canadian stocks, let’s start with the large caps.
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Next, mid-cap companies:
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And then smaller caps:
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Most shorted ETFs
Short interest in exchange-traded funds (ETFs) can highlight sector- and industry-wide issues.
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There have been some noticeable trends in ETF short interest. Over the past year, the iShares Canadian Corporate Bond ETF moved up from 3.6 per cent of float to the current 9.3 per cent and the BMO S&P/TSX Equal-Weight Banks ETF climbed from 2.1 per cent of float to 8.1 per cent.
Short squeeze candidates
While a large short position may be a warning that a stock could underperform, sometimes short sellers can drive the price of a stock higher when they rush to buy back and return the shares they borrowed. Triggers that spark panic buying include: a strong uptrend in the stock price, escalating borrowing costs and low trading volumes in a stock. S3 Partners combines criteria such of these into an algorithm (called the Short Squeeze Score) that ranks companies by the likelihood of a short squeeze, with 100 being the highest probability and 0 being the lowest.
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Short selling activity by the Canada Pension Plan
The Financial Times of London reported on June 4 that a flurry of acquisitions in the U.K. squeezed several short sellers, one of which was the Canada Pension Plan Investment Board (CPPIB). The squeeze was on its short in Hargreaves Lansdown pls, a British financial services company.
We know about the position because regulators in Europe require short sellers to disclose short sales if they are above 0.5 per cent of the shares in a company. The CPPIB is currently reporting short sales of this size in over two dozen European companies.
Some people might be surprised to hear the CPPIB sells stocks short but they are actually a big player in the field. The fair value of its short positions on March 31, 2024, was $23-billion, according to the 2024 Annual Report of CPP Investments.
Sell ratings from an independent investment-research firm
Only 5 per cent of the stock ratings by U.S. brokerage analysts in June were sell-equivalent recommendations, according to FactSet. The 5-year average is 6.1 per cent. Academics say short sellers can serve as a counterbalance to this bullish slant and improve price discovery.
Also, there are some analysts who work for firms that earn their income from only investment research. They don’t need to worry about issuing Sell reports that may have an adverse impact on investment banking and trading operations.
One such firm is Toronto-based Veritas Investment Research. It recently disclosed that 40 per cent of its ratings were “sell” or “reduce” recommendations. Earlier this month, Veritas placed “sell” rankings on the following companies (some views may have since changed):
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Academic research on short selling
An academic study reviewed last year in Short sales on the TSX had found that the GameStop short squeeze of 2021 came “mainly from overnight trading, driven mainly by institutional orders rather than those from retail investors.” In June, there was further confirmation of this finding.
It was reported that Keith Gill, also known as Roaring Kitty, was again trying to initiate a squeeze on GameStop but some veteran market observers thought otherwise. For example, short seller Marc Cohodes posted on X: “I would find out who the players are behind the ‘Kitty’ . . . for sure is he is not acting alone.”
More recently, an academic study, Ponzi Scheme, found that inflows into sector ETFs can push up their prices without regard to the fundamentals, especially if the ETFs track a small number of stocks with large short positions prone to squeezes. The rise in the ETF price attracts more inflows, which further bid up the prices of its holdings in what becomes a self-reinforcing cycle.
Campaigns by activist short sellers
The Bear Cave issued a bearish note on Toronto-based DeFi Technologies, a cryptocurrency company. Defi has responded to the Bear Cave report.
Bleeker Street Research issued a bearish report on Vancouver-based Lithium Americas. No response to the report was found on the company’s website.
End note
S3 Partners was selected as the data source for short sales because Canada has many companies interlisted on U.S. exchanges and S3 Partners sums short positions (currency-adjusted) across both countries (other data sources fail to do this). Also, short positions, regardless of data source, may not always be purely bearish bets because of trades made for hedging or arbitrage reasons.