It is worth pointing out that March is Fraud Prevention Month. This makes it a good time to highlight the role short sellers play in detecting fraud in financial markets.
Over the past decade, they have exposed hundreds of cases in very public campaigns, as has been reported by Breakout Point and other sources. In doing so, they have likely provided a deterrent effect.
Just this year, short seller and retired hedge fund manager Marc Cohodes uncovered and reported to regulatory authorities the shenanigans at the now bankrupt cryptocurrency exchange FTX Trading and cryptocurrency lender Signature Bank. Daniela Cambone’s interview with Cohodes on the Stansberry Research channel is worth seeing.
But ordinary investors don’t have to become short sellers to fight fraud. The Ontario Securities Commission now runs a Whistleblower Program. Since inception in 2016, eleven whistleblowers have earned a total of $9-million, or an average of just over $800,000 each. The maximum award a whistleblower can earn is $5-million.
Every month, S3 Partners provides the Globe and Mail with short-selling data on Canadian companies. S3 Partners is a preferred source because Canada has many interlisted stocks, and it is one of the few data providers that aggregates short positions across Canadian and U.S. markets. Their March update on the most shorted Canadian companies is presented below.
20 most shorted companies by percentage of float (March 29)
As can be seen, Canada Goose Holdings Inc. has emerged with a significant short position in March. It had the highest percentage of float sold short, with a reading of 35.3 per cent. This was much higher than 24.1 per cent in February. In dollar terms, the company’s short position over the past three months has increased by $195.2-million. (A caveat: changes in short positions may not always reflect a purely bearish bet but may instead be related to other factors, such as hedging or arbitrage)
Canada Goose markets a range of iconic parkas, hats, gloves and other outdoor apparel through retail, wholesale and direct-to-customer channels. The strength of the brand allows it to charge premium prices. The company is planning expansion into other lines of apparel and geographic markets, which the company believes should generate significant growth in the years ahead.
During the last quarterly earnings report, in February, financial results came in below expectations due to a COVID-19 spike in China and inflation dampening sales in North America. Sales forecasts were also revised downward. After the quarterly report, there was a decline in share price of more than 20 per cent.
UBS analyst Jay Sole commented that the slowdown in North America may be a sign that the macroeconomic environment is becoming less supportive of demand for luxury goods. The trailing price-earnings ratio for Canada Goose shares currently hovers around 38.
Largest one-month increases in short positions (March 29)
1) Some short positions may partly reflect positions – so they are not purely bearish bets.
2) Short positions in inter-listed stocks were summed across exchanges in Canadian dollars.
3) When an investor purchases stock that was sold by a short seller, it creates a synthetic long position; if these long positions are not included in the float count, the percentage-of-float-short metric can be overstated – however, most of the time, the magnitude is not significant.
4) The percentage of float short for ETFs is impacted by the ETF mechanism for creating/redeeming units, which results in almost daily changes in the number of units issued. As a result, the percentage of float short for ETFs may be more volatile than for stocks.