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Bearish Investors Bet Against Canadian Stocks: A Closer Look

Strategic Insights

— 2 min read

In the latest update on short selling, Canadian Exchange-Traded Funds (ETFs) have seen significant activity, with the BMO S&P/TSX Equal Weighted Banks ETF experiencing a substantial short position. The financial community attributes this to concerns over US President Donald Trump's tariffs and their potential impact on Canada's economy. Meanwhile, academic studies suggest that stocks with large short positions tend to underperform, indicating potential research-worthy stocks.

Key Takeaways:

  • Short sales in Canadian ETFs have been on the rise, with the BMO S&P/TSX Equal Weighted Banks ETF experiencing a short position of 22.2% of float in June.
  • The iShares S&P/TSX Energy ETF, with a short position of 14.1% of float, may be related to OPEC+ announcing an increase in oil supply, which could weigh on oil prices.
  • Stocks with large short positions tend to underperform, making them potential candidates to research and avoid.
  • Mid- and large-cap stocks with the lowest levels of short sales, such as Air Canada and Canada Goose Holdings Inc., are worth examining due to the impact of US President Trump's tariff policies.
  • Energy Fuels Inc. is a notable example of a company with a significant short position (10.2% of float) and a history of losses, as well as potential risks related to indigenous issues and environmental impacts.
  • Great-West Lifeco Inc. and Manulife Financial have seen substantial short positions, potentially indicative of a high-level pairs trade or arbitrage operation.
  • TMC The Metals Co. Inc. has seen a significant increase in its short position, but the company's stock has soared, highlighting the potential for short sellers to be incorrect.
  • S3 Partners has created an algorithm, the Short Squeeze Score, to rank companies by the likelihood of a short squeeze, with a score of 100 representing the highest probability.
  • The Short Squeeze Score has identified potential short squeeze candidates, such as TMC The Metals Co. Inc. and Great-West Lifeco Inc.

Statistics:

  • 22.2%: BMO S&P/TSX Equal Weighted Banks ETF's short position in June
  • 16.1%: BMO S&P/TSX Equal Weighted Banks ETF's short position in May
  • 14.1%: iShares S&P/TSX Energy ETF's short position in June
  • 10.2%: TMC The Metals Co. Inc.'s short position in June
  • 5.8%: Great-West Lifeco Inc.'s short position in June
  • 4.3%: Great-West Lifeco Inc.'s short position in May
  • 3.0%: Manulife Financial's short position in May
  • 2.2%: BMO S&P/TSX Equal Weighted Banks ETF's short position in April
  • 100: Short Squeeze Score indicating the highest probability of a short squeeze

Sources:

  • BMO S&P/TSX Equal Weighted Banks ETF
  • iShares S&P/TSX Energy ETF
  • Energy Fuels Inc.
  • TMC The Metals Co. Inc.
  • Great-West Lifeco Inc.
  • Manulife Financial
  • S3 Partners
  • Data firm S3 Partners

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