Anyone investing online in company shares will know that one valuable indicator all may not be well with a company is professional investors taking significant short positions against it. Of course, the professionals are not always right but they do have teams of highly experienced analysts working behind the scenes on the market positions they take. As such, when there is a strong wave of negative sentiment against particular companies by institutional investors it is worth taking note of, particularly if you happen to hold the shares. It can highlight potential dangers you have not spotted yourself such as increasing competition, the danger of technology becoming obsolete, declining returns or a poor balance sheet.
Every day the UK’s Financial Conduct Authority publishes information on all of the short positions taken on companies listed on the London Stock Exchange. That information is collated by boutique asset management company Castellain Capital and published via their Short Tracker website. The information is available for free and as well as publishing a list of the companies currently most shorted, users can also see which funds have done so, on what date and even set up a watch list. It’s a very handy resource for anyone investing online in shares through an ISA or SIPP and especially worthwhile taking advantage of as it comes with no cost attached.
The company currently most shorted is, unsurprisingly, Carillion, the government-contractor construction company currently in liquidation. The next four, in order, are Debenhams, Pets at Home, Restaurant Group and Marks and Spencer. The short positions against these companies roughly correspond to what analyst recommendations, with each of the companies recommended as either a sell or hold by a consensus of analysts.
Perhaps of even more value than looking at the most shorted companies, once they are in the top 5 problems are common knowledge and share price will already reflect negative sentiment, is tracking companies moving up or down the rankings. If a company is still not heavily shorted but seeing an increasing tendency to be, it could be a good early warning signal to get out before share price falls furthers. Inversely, a company that has been heavily shorted but is seeing short positions scaled back could be on the road to recovery and set for a period of gains. As always, no one metric should be blindly followed when assessing a company’s merits but the ShortTracker website is certainly a very useful free addition to an amateur investor’s arsenal.Risk Warning:
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.