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Short-selling activity in stocks can generate useful signals and information for investors. Let’s look at some key developments on the Toronto Stock Exchange (TSX) during the month of June.

Short selling at the market level

The dollar value of the short position in the iShares S&P/TSX 60 ETF (XIU-T) continued to drift down, reaching $1.3-billion in June compared to $2.7-billion in June of last year. Thanks to COVID-19 vaccinations and improving business conditions, market participants seem to be feeling less of a need to hedge against a TSX downturn.

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The Globe and Mail

Short selling at the sector level: cryptocurrency ETFs have been very lucrative

Short interest in the 20 cryptocurrency ETFs trading on Canadian exchanges fell to 12.5 million units, a decrease of 14.1 per cent from May. The decline likely reflects profit-taking by short sellers, who have been richly rewarded by an average 40-per-cent tumble in the value of cryptocurrency ETFs during the past 3 months.

Short positions in Cryptocurrency ETFS

3IQ Coinshares Bitcoin ETF CADBTCQ-T 41,434 173,346 -76.1%
3IQ Coinshares Ether ETF UnitsETHQ-T 34,519 162,945 -78.8%
Betapro Bitcoin ETFHBIT-T 1,885 4,635 -59.3%
Betapro Inverse Bitcoin ETFBITI-T 11,058 23,477 -52.9%
Bitcoin ETF CAD Unhedged EBIT-T 36,385 130,336 -72.1%
Bitcoin ETF USD Unhedged EBIT-U-T 20,476 33,395 -38.7%
CI Galaxy Bitcoin ETF CAD Unhedged BTCX-B-T 3,021,612 3,097,156 -2.4%
CI Galaxy Bitcoin ETF Unhedged USDBTCX-U-T 257,089 325,032 -20.9%
CI Galaxy Ethereum ETF CAD UnhedgedETHX-B-T 1,867,666 2,543,858 -26.6%
CI Galaxy Ethereum ETF USD Unhedged ETHX-U-T 10,126 148,210 -93.2%
Ether ETF CAD Unhedged ETHR-T 280,922 350,197 -19.8%
Ether ETF USD Unhedged ETHR-U-T 19,137 9,365 104.3%
Ninepoint Bitcoin ETF BITC-T 131,941 550,678 -76.0%
Ninepoint Bitcoin ETF USDBITC-U-T 5 5 0.0%
Purpose Bitcoin ETF CAD Currency Hedged BTCC-T 336,242 85,635 292.6%
Purpose Bitcoin ETF CAD Non-Cur Hedged BTCC-B-T 1,175,636 822,911 42.9%
Purpose Bitcoin ETF USD Non-Cur Hedged BTCC-U-T 4,797,425 5,326,032 -9.9%
Purpose Ether ETF CAD Cur Hedged ETHH-T 221,226 418,857 -47.2%
Purpose Ether ETF CAD Non-Cur HedgedETHH-B-T 100,562 163,221 -38.4%
Purpose Ether ETF USD Non-Cur HegdedETHH-U-T 90,094 134,836 -33.2%
Total 12,455,440 14,504,127 -14.1%

Source: Investment Industry Regulatory Organization of Canada

The performance of highly shorted Canadian stocks

Investment firm Goldman Sachs calculates the performance of heavily shorted stocks in the United States. There doesn’t appear to be a similar measure for Canada.

So, we have created a preliminary index based on a basket of stocks gathered at the beginning of 2021 from two tables in the Short sales on the TSX column: i) companies with the highest percentage of float sold short and ii) companies sold short by activist short sellers.

The Goldman Sachs index has found that highly shorted stocks sometimes outperform due to short squeezes. What we find in Canada for the first six months of 2021 is underperformance.

The group of TSX stocks with heavy short interest did register a year-to-date gain of 1.8 per cent, but the increase was below the 16.5-per-cent advance in the S&P/TSX Composite Index. This aligns with the findings of academic studies that short squeezes are usually transitory factors.

The top 20 companies with the highest percentage of float sold short (June 23)

The stock with the highest percentage of float short as of mid-June was cannabis firm Aurora Cannabis Inc. (ACB-T), at 23 per cent, according to S3 Partners data. The company recently reported declining market share in Canada.

Second highest, at 19.3 per cent, was Alpha Pro Tech Ltd. (APT-A), a maker of face masks and other items in demand during COVID-19. But immunizations are now reducing the need.

Air Canada (AC-T) is third on the list, with 18.5 per cent of its float sold short. The air-travel industry is facing higher fuel prices, price discounting and business travelers becoming accustomed to Zoom meetings.

Aurora Cannabis Inc.ACB-T23.0%
Alpha Pro Tech Ltd.APT-A19.3%
Air CanadaAC-T18.5%
Fortuna Silver MinesFVI-T17.0%
Westshore Terminals Investment Corp.WTE-T15.5%
VBI Vaccines IncVBIV-Q14.8%
Energy Fuels Inc.EFR-T14.7%
Lithium Americas Corp.LAC-T14.4%
Village Farms InternationalVFF-T14.2%
Tucows Inc.TC-T14.2%
Canadian Solar IncCSIQ-Q13.9%
Exco Technologies Ltd.XTC-T13.4%
Sundial Growers Inc.SNDL-Q13.2%
BMO S&P/TSX Equal Weight Banks ETFZEB-T13.2%
Canopy Growth Corp.WEED-T12.8%
Morguard REITMRT.UN-T12.7%
Aurinia Pharmaceuticals Inc.AUP-T12.6%
iShares S&P/TSX 60 ETFXIU-T12.5%
Great West Lifeco Inc.GWO-T12.3%
Ballard Power SystemsBLDP-T12.1%

Source: S3 Partners

Includes U.S. short sales (after converting to CAD)

In fourth place with 17 per cent of float short, is Fortuna Silver Mines Inc. (FVI-T), a relative newcomer to the list. The junior miner is bidding to take over a gold producer in West Africa, which some observers consider to be a politically unstable region.

Fifth in line is Westshore Terminals Investment Corp. (WTE-T), at 15.5 per cent of float. It operates a port that stores and ships coal from the B.C. coast.

Top 10 companies with significant 3-month increases in short sales (as of June 23)

Over the past three months, Canadian National Railway Co. (CNR-T) and Canadian Pacific Railway Ltd. (CP-T) had the largest increases in the dollar value of short positions.

The two just completed a bidding war for the Kansas City Southern railway; CP Railway lost but winner CN Railway could have the deal cancelled by the industry regulator – or if approved, will have a lot of debt on its balance sheet.

CN RailwayCNR-T$1,365.12.8%
CP RailwayCP-T$1,111.53.3%
Enbridge Inc.ENB-T$487.94.4%
TC Energy Corp.TRP-T$329.74.4%
Power Corp. CanadaPOW-T$294.06.0%
Blackberry Ltd.BB-T$236.49.1%
Imperial Oil Ltd.IMO-T$232.06.1%
Great West Lifeco Inc.GWO-T$227.912.3%
West Fraser Timber Co.WFG-T$225.46.3%

Source: S3 Partners

Includes U.S. short sales

Short selling in BlackBerry Ltd. (BB-T) is noticeably bearish too – however, it has emerged as a meme stock with Reddit retail investors, and has signed a deal with Amazon to work on a self-driving car.

Short sales in Great West Lifeco Inc. (GWO-T) and West Fraser Timber Co. (WFT-T) were also quite elevated.

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