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Over the past month, there were several developments regarding short sales on the Toronto Stock Exchange. They were:

  • Short selling was at some of the lowest levels in years;
  • Heavily shorted stocks continued to outperform lightly shorted stocks;
  • Activist short sellers managed to swim against the tide and perform well;
  • Controversy over the compilation of short-selling statistics;
  • Large jumps in short sales for NFI Group Inc. (NFI-T) and Sundial Growers Inc. (SNDL-Q).

Low levels of short selling

Since the COVID pandemic broke out about a year ago, governments around the world have unleashed massive amounts of economic stimulus. In Canada, the S&P/TSX 60 Index has soared by more than 50 per cent since March of 2020.

In this kind of environment, it’s difficult to sell short. Not surprisingly, bearish bets are at a low tide - as highlighted by the drop in the short position on the iShares S&P/TSX 60 ETF (XIU-T) to 60-million units as of March 11 (compared to 119 million in June of 2020).

Heavily shorted stocks outperforming lightly shorted stocks

Heavily shorted shares, as measured by the percentage of float short or the cost to borrow, usually underperform lightly shorted shares, according to studies carried out by scholars. However, this correlation has been going in reverse for a year now – thanks in large part to short squeezes.

The 12-month gains on heavily shorted stocks have surpassed lightly shorted stocks every month by an average 2.5 per cent since April, 2020, notes Sam Pierson, Director of Securities Finance for IHS Markit, in Biggest Short Squeeze Ever.

This result likely reflects the epic policy stimulus triggered by COVID and consequent high levels of bullish sentiment in stock markets. In time, as the virus is brought under control, large short positions should once again become signals of underperformance.

Activist short sellers doing well

Activist short sellers publicize their negative views on companies. Of the 32 companies they targeted so far in 2021, share prices are lower for 25 of them. The average gain to activist short sellers was more than 18 per cent, as reported in the Institutional Investor article, In a Surprise Twist, Most Activist Shorts Are Up This Year.

Lies, dammed lies and short-selling statistics

A main indicator used in short-selling analyses is the percentage of float sold short. This ratio is usually miscalculated, says Ihor Dusaniwsky, Managing Director at S3 Partners, in an interview published at Experts on Short Selling Tell You What Statistics to Really Focus On.

The error occurs in the denominator, where the number for a company’s float appears. It should not be set equal to the number of shares outstanding minus restricted shares, Mr. Dusaniwsky argues.

Since the float represents the number of shares trading, it will increase when a short sale occurs. This is because the person buying from the short seller is acquiring a borrowed stock that someone else already owns. If this synthetic long position is not counted, the float will be too small, resulting in an overstatement of the percentage short. Sometimes, as we have seen in the case of GameStop Corp., it can be inflated even above 100 per cent.

Company-level data on short sales

A regular feature of the monthly updates on TSX short sales are the tables of short interest at the company level, with data supplied by S3 Partners. The current tables show noticeable increases for bus manufacturer NFI Group and cannabis firm Sundial Growers.

Note that short positions may not always entail a directional bet on a company’s share price. Sometimes they may instead reflect a hedging operation, as can often be the case when convertible securities are part of a company’s capital structure.

Top 10: Companies with substantial 3-month increases in short sales (as of March 11) 

Ticker3-month rise in short sales ($-mil)3-month rise in short sales (%)% of float sold short
Bank of Nova ScotiaBNS-T$1,021.90 27.8%5.0%
Enbridge Inc.ENB-T$691.80 19.0%4.8%
CIBCCM-T$641.20 25.1%5.8%
TC Energy Corp.TRP-T$483.40 19.2%5.3%
Tilray Inc.TLRY-Q$390.90 135.4%14.6%
NFI Group Inc.NFI-Q$363.90 643.1%22.0%
Sundial Growers Inc.SNDL-Q$315.10 930.0%13.0%
Aphria Inc.APHA-T$281.90 83.9%8.6%
Blackberry Ltd.BB-T$249.40 52.8%9.9%
Telus Corp.T-T$245.00 19.1%4.4%

Source: S3 Partners

Includes U.S. short sales (converted to CAD)

Top 20 companies with the highest percentage of float sold

Ticker% of float sold short (March 11)
NFI Group Inc.NFI-T22.0%
BMO S&P/TSX Equal Weight Banks ETFZEB-T18.9%
VBI Vaccines Inc.VBIV-Q18.5%
Westshore Terminals Corp.WTE-T17.2%
iShares S&P/TSX 60 ETFXIU-T16.4%
Hexo Corp.HEXO-T16.3%
Horizons US Dollar Currency ETFDLR-T16.2%
Cronos GroupCRON-T16.2%
Tilray Inc.TLRY-Q14.6%
Just Energy Group Inc.JE-T14.2%
BMO Laddered Preferred Share ETFZPR-T14.0%
Tucows Inc.TC-T13.7%
Canadian Solar Inc.CSIQ-Q13.2%
Sundial Growers Inc.SNDL-Q13.0%
First Majestic Silver Corp.FR-T12.9%
Lions Gate Entertainment-ALGF-A-N12.8%
Energy Fuels Inc.EFR-T12.4%
Aurora Cannabis Inc.ACB-T12.2%
Exco Technologies Ltd.XTC-T11.4%
Great-West LifecoGWO-T11.1%

Source: S3 Partners

Includes U.S. short sales (converted to CAD)

Recent Targets of Activist Short Sellers

Exro Technologies Inc. (EXRO-X), based in Vancouver, was targeted in a March 2 report by Mariner Research. Exro responded by saying the claims were false. In a statement it said it had the patents and resources in place to execute on its strategic shift toward developing “a new class of control technology that expands the capabilities of electric motors, generators, and batteries.”

GreenPower Motor Co. Inc. (GP-Q), also based in Vancouver, was targeted in a report by White Diamond Research on March 2. Mariner Research also published on GreenPower, back in September of 2020. The company is in the business of developing electric buses.

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