The Short Report

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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 July 10, 2014

The ASX 200 rallied abruptly last week to wipe out end of financial year selling pressure and reestablish a familiar position just above the 5500 mark. Now that EOFY is out of the way, attention turns to results season next month. It was notable last week that the rally coincided with only one stock on our most shorted table suffering bracket creep on increased shorts, being Bradken ((BKN)), while all other bracket creep movements were to the downside. Clearly a few shorters are squaring ahead of any profit surprises.

Having shot into our table last week, iiNet has shot out again as what appears to have been a pairs trade against SingTel was closed. Atlas Iron snuck into the 10% plus club last week and this week moved rapidly up the ranks. Creeping steadily up our leaders board is Acrux ((ACR)), which has now claimed second position from Monadelphous ((MND)), having moved to 14.1% shorted. It's still a long way up to longstanding incumbent leader Cochlear ((COH)) at 18.5%.
 

Weekly short positions as a percentage of market cap:

10%+

COH   18.1
ACR    14.1
JBH     13.1
MND   13.0
PDN    12.0
AGO   12.0
TRS     11.8
MYR   11.6
MTS    12.5
UGL    11.0
NWS   10.8
ALQ    10.2

No changes

9.00-9.99%

BKN, ILU

In: BKN

8.00-8.99%

NXT, CAB, BLY

Out: BKN, IIN, MTU                       

7.00-7.99%

MTU, WHC, ASL, RRL, DSH, WSA, SGT, MIN

In: MTU

6.00-6.99%

FMG, TEN, MSB, BRU

Out:  NUF

5.00-5.99%

FLT, KAR, VET, SGM, TSE, GWA, NUF, HVN, LYC, SCP, GNC, OZL, WTF

In: NUF                      Out: GNC, WTF
 

Movers and Shakers

Last week saw Atlas Iron ((AGO)) just sneak into the double digit club at 10.0% on a slight tick up in shorts the week before. This week sees Atlas jump up the table with a further 2.0ppt increase in shorts to 12.0%. Improving iron ore prices pushed AGO shares up a bit last week, and the non-believers took the opportunity.

It is clear iiNet ((IIN)) has become a shorters’ plaything which most likely implies active pairs trading in the telco sector. The previous two weeks saw IIN shorts jump 2.2ppt to 4.3% then 4.3ppt to 8.6%. Notably, SingTel ((SGT)) short movements were matched the other way. Last week saw a 6.1ppt plunge to 2.5%. Potentially one big pairs trade was cashed in hence IIN flies out of our table once more.

We’ll make special mention this week of Wotif.com ((WTF)), which last week hung precariously at the bottom of our table with a 5.0% short position. Along came Expedia with a takeover offer, WTF’s share price shot up, and WTF shorts have fallen 2.7ppt to 2.3%. That’s the risk a shorter runs.

To see the full Short Report, please go to this link.
 

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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