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The rally on the Toronto Stock Exchange this year is lifting all boats – including those of the short sellers, to their dismay. One indication of the hit they’re taking is the average 13-per-cent gain since January in the 20 most heavily shorted companies. This increase is nearly the same as the TSX’s increase.

Shorted stocks should underperform the market over the longer term, if academic studies are a guide. But many analysts expect that the U.S. Federal Reserve will cut interest rates in 2019, so the bullish streak in stocks could continue for a while yet and keep pressuring the shorts.

The top price gainers among the most shorted companies include Badger Daylighting Ltd (44.3 per cent), Home Capital Group Inc. (31.3 per cent) and Exchange Income Corp. (30.3 per cent). These three, incidentally, were targets of Marc Cohodes, a former hedge-fund manager who trades his own account.

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Mr. Cohodes could be proven right eventually. For now, he appears to have dialed down his activist short-selling campaigns on Canadian stocks. The short-selling community at large, however, remains active: The following three tables present their most bearish trades for the month ending mid-June.

The first table lists the most heavily shorted companies, as measured by the percentage of float sold short. Float is defined as shares available for trading (they are the ones not held by long-term investors such as employee stock ownership plans).

The top 20 companies with the highest percentage of shares short (as of June 17)

Company% of float sold shortBorrow fee (annualized)
Tilray Inc.TLRY-Q30.6%31.9%
Genworth MI Canada Inc.MIC-T27.5%1.1%
Home Capital Group Inc.HCG-T22.6%3.4%
Cronos GroupCRON-T21.3%7.5%
Canopy Growth Corp.WEED-T18.8%7.7%
iShares S&P/TSX Energy ETFXEG-T18.7%2.6%
Equitable GroupEQB-T18.6%4.9%
Canada Goose HoldingsGOOS-T18.5%0.7%
Village Farms InternationalVFF-T16.7%23.9%
Westshore Terminals Investment Corp.WTE-T16.6%0.3%
iShares S&P/TSX 60 Index ETFXIU-T16.4%0.5%
Laurentian Bank of CanadaLB-T15.6%1.1%
Tucows Inc.TC-T15.5%1.9%
Seabridge Gold Inc.SEA-T15.3%2.4%
First Majestic Silver Corp.FR-T15.2%1.7%
Exchange Income Corp.EIF-T14.0%26.7%
Stars Group Inc.TSGI-T13.0%0.3%
Great-West LifecoGWO-T12.8%0.3%
Aphria Inc.APHA-T12.2%28.9%
Vermilion Energy Inc.VET-T12.1%0.3%

Source: S3 Partners

U.S. trades for interlisted stocks are included in the calculations (after converting to C$)
Percent of float sold short is based on number of shares sold/number of shares available for trading

Borrow fee = the annualized cost to borrow shares that short sellers have to pay

Tilray Inc., a cannabis company based in Nanaimo, B.C., had a huge jump in short interest over the month to June 17, and rocketed to the top of the most shorted list. Other cannabis firms, including Cronos Group Inc. and Canopy Growth Corp., also had significant jumps.

Enabling the increases is the growing availability of loanable shares and a huge decline in borrowing costs. At one time last fall, the borrow fee for Tilray shares had soared to 700 per cent (annualized), and it is now close to 30 per cent. If rates fall further, more short sales could be on the way.

Firms involved in insuring mortgages and lending to non-prime borrowers – notably Genworth MI Canada Inc., Home Capital Group Inc. and Equitable Group – registered increases in their short positions. This reflects a concern over softness in the Canadian housing market, although some respite might be provided by upticks in the Teranet-National Bank House Price Index, as occurred in May.

Short interest in Canada Goose Holdings Inc. also climbed, even after a 30-per-cent plunge in its stock. The plunge was triggered by a fourth-quarter report showing revenue growth coming in below expectations. Warning signs included net insider selling of $183-million and disclosure of a short position by a hedge-fund manager, James Hodgins of Curvature Hedge Strategies Fund.

Stocks with substantial short positions may sometimes experience a short squeeze (the price of a stock spikes upward as short sellers rush to buy shares and close out their positions). A high level of insider buying would be one warning of this risk. On the first table, Stars Group Inc. and Aphria Inc. had net insider buying over the past year of $3.8-million and $3.2-million, respectively.

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Heavy net selling by insiders reinforces the bearish signal from short sellers. On the first table, such cases include most of the cannabis companies, as well as: Seabridge Gold Inc. (-$7.9-million), Genworth MI Canada Inc. (-$2.2-million) and First Majestic Silver Corp. (-$2.2-million).

The next table shows the 20 companies with the biggest increases in short positions over the past month. It gives more play to bigger companies, which tend not to appear much on the first table because their floats are so huge that the percentage of shares short usually is customarily low.

The top 20 companies with the largest increase in short position (as of June 17)

Company1-month change to June 17 ($million)Short interest as of June 17 ($million)% change in short interest over the month
Toronto-Dominion BankTD-T$492.6$4,721.711.6%
BCE Inc.BCE-T$282.0$2,240.714.4%
Restaurant Brands InternationalQSR-T$171.3$1,063.119.2%
Canopy Growth Corp.WEED-T$167.0$2,413.87.4%
Franco-Nevada Corp.FNV-T$162.5$473.452.3%
Cenovus EnergyCVE-T$157.4$729.827.5%
Royal Bank of CanadaRY-T$124.5$1,669.88.1%
Canadian National ResourcesCNQ-T$105.7$673.818.6%
CP RailwayCP-T$104.4$583.221.8%
Teck Resources Ltd. TECK-B-T$97.7$352.238.4%
Cronos GroupCRON-T$97.4$757.414.8%
Nutrien Ltd.NTR-T$91.6$807.612.8%
Kirkland Lake Gold Ltd.KL-T$87.1$363.931.5%
Bank of Nova ScotiaBNS-T$74.7$3,028.02.5%
Rogers CommunicationsRCI.B-T$71.9$696.311.5%
Manulife FinancialMFC-T$70.6$563.914.3%
CCL Industries Inc.CCL-B-T$68.3$212.447.4%
Gildan ActivewearGIL-T$68.1$242.339.1%
Shaw Communications Inc.SJR-B-T$64.3$527.113.9%
iShares S&P/TSX 60 Index ETFXIU-T$62.1$1,584.94.1%

Souece: S3 Partners

U.S. trades for interlisted stocks are included in calculations (after converting to C$)

The next table shows companies with the highest cost to borrow shares, another gauge of bearish sentiment. These companies do not appear on the first two tables much because they tend to be small and have a low number of freely trading shares. So, short sellers’ sentiment is revealed more though the bidding up of borrowing costs instead of the number or value of shares.

The 20 most expensive shares to borrow (as of June 17)

CompanyBorrow fee (annualized)
New Millennium Iron Corp.NML-T115.4%
Tanzanian Gold Corp.TNX-T98.6%
Minera Alamos Inc.MAI-T78.5%
Midas Gold Corp.MAX-T77.5%
Electrovaya Inc.EFL-T75.9%
Cathedral Energy Services Ltd.CET-T75.8%
Mega Uranium Ltd.MGA-T73.2%
Prometic Life Sciences Inc.PLI-T65.1%
Royal Nickel Corp.RNX-T43.4%
Sproutly Canada Inc.SPR-T42.2%
Japan Gold Corp.JG-T38.8%
Minco Silver Corp.MSV-T38.4%
Lithium Americas Corp.LAC-T38.3%
Western Copper and Gold Corp.WRN-T38.0%
Zargon Oil & Gas Ltd.ZAR-T35.9%
Petrus Resources Ltd.PRQ-T33.0%
Aurion Resources Ltd.AU-T32.6%
Liberty Health Sciences Inc.LHS-T32.6%
Street Capital Group Inc.SCB-T32.6%
Cequence Energy Ltd.CQE-T31.9%

Source: Interactive Brokers

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