The Short Report

This story features INSIGNIA FINANCIAL LIMITED, and other companies. For more info SHARE ANALYSIS: IFL

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Week ending May 19, 2016

Last week saw the ASX200 bounce around the 5350 level, having one failed shot at 5400, which having for a long time having been a technical target has become a resistance level at which profit-taking is triggered. This morning’s ASX200 action is a case in point.

And then there were five. Last week saw Primary Health Care ((PRY)) just sneak out of the 10% plus shorted club, while Monadelphous dropped from 10.3% to 8.1% with no obvious trigger. The number of short positions in excess of 10% has never been as low as five in the history of this Report.

The number of positions in excess of 5% also remains historically low, although after about three weeks of very little movement in positions last week did see some action in a couple of stocks last week.

Ahead of this week’s investor day, positions in WorleyParsons were trimmed by 1.7 percentage points.

On the other side of the ledger, shorts in IOOF Holdings ((IFL)) increased to 7.2% from 5.7%. Media monitoring service iSentia jumped into the table for the first time last week, from under 5% to 6.3%. The stock has been having a good run this month. And while only seeing an increase of 0.5ppt last week, we note Cover-More ((CVO)) has been quietly moving up the table recently.

Independence Group has been another mover in recent times. Last week its shorts increased to 9.7% from 8.5%.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.0
MTS    15.2
WOR   12.8
ORI     10.9
FLT     10.8

Out: MND, PRY

9.0-9.9%

PRY, IGO
 
In: PRY, IGO             Out: JBH        

8.0-8.9%

AWC, CAB, JBH, WOW, BAL, MND

In: MND, JBH                        Out: IGO, AWE

7.0-7.9%

SHV, WSA, AWE, GUD, AAC, IFL, CVO

In: AWE, IFL, CVO              Out: IVC

6.0-6.9%

SGH, IVC, BEN, NWS, NEC, OSH, RFG, SEK, ISD, AHY

In: IVC, ISD, AHY               

5.0-5.9%PDN,

BKL, DOW, TFC, MRM, CTD, WHC, ALQ, PDN, CDD

In: DOW                     Out: IFL, AHY, QUB, ILU

Movers and Shakers

Last week saw shorts in resource sector service companies WorleyParsons ((WOR)) and Monadelphous ((MND)) both trimmed, Worley to 12.8% from 14.6% and Mona to 8.1% from 10.4%. I’m a little wary of these Engineering & Contractor names and their short movements, given they often drop sharply down the table one week only to jump right back up again the next.

That said, we note E&C names globally have been enjoying a re-rating of late, thanks to the rebound in the oil price. Share prices in the sector had been beaten down very hard, so no doubt the value investors have been interested. This may explain why shorts have reduced, albeit while Mona has provided no new news of late, Worley did host an investor day this week. Shorters may have trimmed just in case.

Meanwhile, shares in nickel/gold produce Independence Group ((IGO)) enjoyed a bit of a rally last week. While the gold price has had its ups and downs of late and the nickel price has gone nowhere much, expectations of further RBA rate cuts have seen brokers cutting their Aussie dollar forecasts, which imply higher Aussie revenues from US dollar-denominated exports.

Independence has been a quiet mover up the table in recent weeks and is now knocking on the door of the 10% club. Last week shorts in the stock increased to 9.7% from 8.5%.

A couple of weeks ago stockbroker Moelis and Co issued a note suggesting media monitoring service provider iSentia Group ((ISD)) stood to be a beneficiary of a long and drawn out local election campaign. Coincidentally, iSentia shares went for a bit of a run. Not everyone is convinced though, it would seem. Having not appeared in the 5% plus table previously, the stock registered shorts of 6.3% last week.

Last week fund manager IOOF Holdings ((IFL)) issued a profit warning, citing weak markets in the second half. Not all brokers are convinced of this explanation, given markets have recovered in the fourth quarter what they lost in the third. There is even a suggestion IOOF may be “cleansing” ahead of a takeover bid.

If that’s the case, the shorters best be careful. Last week IOOF shorts rose to 7.2% from 5.7%.
 

ASX20 Short Positions (%)

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position "naked" given offsetting positions held elsewhere. Whatever balance of percentages truly is a "short" position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, "short covering" may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to "strip out" the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option ("buy-write") position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a "long" position in that stock.

Another popular trading strategy is that of "pairs trading" in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a "net neutral" market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are "short". Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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