Small Caps Make The Best Shorts
Author:
Ihor Dusaniwsky
Managing Director of Predictive Analytics, S3 Partners
Matthew Unterman
Director of Predictive Analytics, S3 Partners
Breaking down the profitability of short selling by market caps produced surprising results – shorting smaller cap (small, micro & nano caps) securities produced outsized returns relative to the rest of the market.
In 2023, in an upward trending market, shorting U.S. equities was a losing proposition with -$126.9 billion in mark-to-market losses, -13.13%, on an average short position of $966 billion. But digging into the details we find that shorting smaller cap securities produced $12.9 billion in mark-to-market profits, +15.11%, on an average short interest of $85.6 billion versus mark-to-market losses for the mega, large, and mid-cap stocks.
YTD MTM P\L
Count
Avg. Short Interest
YTD MTM P\L
P\L %
Mega & Large
1,772
$653,095,067,028
($110,731,100,435)
-16.95%
Mid
2,901
$227,366,711,950
($29,055,406,445)
-12.78%
Small, Nano & Micro
14,043
$85,572,054,459
$12,926,413,948
15.11%
All U.S. Shorts
18,716
$966,033,833,437
($126,860,092,932)
-13.13%
The outperformance of smaller cap stocks on the short also held true in the downward trending market we saw in August and September with smaller-cap performance almost four times greater than mega\large cap stocks and almost two times more profitable than mid-cap stocks.
Aug\Sept MTM P\L
Count
Avg. Short Interest
Aug\Sept MTM P\L
P\L %
Mega & Large
1,669
$645,775,377,356
$21,022,881,804
3.26%
Mid
2,634
$219,867,814,356
$15,119,852,279
6.88%
Small, Nano & Micro
9,388
$75,116,915,042
$9,737,066,151
12.96%
All U.S.
13,691
$940,760,106,754
$45,879,800,234
4.88%
When breaking down the three market cap groups by profitability we see that while only 30% of every dollar shorted in the mega, large, and mid-cap sectors produced positive returns, 58% of every dollar shorted in the smaller-cap sector was a winner in 2023. A third of a percent of all shorted shares were flat for the year.
YTD Notional Short
Total ($mm's)
Profit ($mm's)
%
Loss ($mm's)
%
Mega & Large
$653,095
$194,289
29.75%
$458,297
70.17%
Mid
$227,367
$72,548
31.91%
$153,064
67.32%
Small, Nano & Micro
$85,572
$49,443
57.78%
$35,236
41.18%
All U.S.
$966,034
$316,281
32.74%
$646,596
66.93%
These excess returns also held true in August\September although with a lesser spread. Two-thirds of the mega, large, and mid-cap sectors produced positive returns versus eighty percent of the smaller-cap stocks in the black. Just over one percent pf all shorted shares were flat in August\September.
Aug\Sept Notional Short
Total ($mm's)
Profit ($mm's)
%
Loss ($mm's)
%
Mega & Large
$645,775
$430,468
66.66%
$210,919
32.66%
Mid
$219,868
$151,518
68.91%
$63,127
28.71%
Small, Nano & Micro
$75,117
$59,489
79.19%
$14,394
19.16%
All U.S.
$940,760
$641,475
68.19%
$288,441
30.66%
One obvious explanation to the smaller-cap outperformance on the short side may be the lack of institutional trading in these names. Hedge funds will not usually tread int these shallow market cap names on both the long and short side because of the lack of trading liquidity, smaller pools of stock loan availability, and inability to build a significant long or short position without being a significant percentage of the stock’s float.
The lack of sharks swimming in these waters may make the fishing more lucrative. Long only institutions can skew stock prices higher with continued buying and the lack of institutional short selling allows for retail short sellers to get into a name before it gets crowded.
Also, the increased effect of momentum and FOMO trading has exacerbated directional moves in stocks, exemplified by meme stock price moves. These trading factors are amplified in smaller cap stocks where trading volumes are usually lighter and smaller trading surges can create upward or downward stock price spikes.
Only eight percent of all short selling is in smaller-cap stocks, they have a two and a half time larger SI % Float and four times more expensive stock borrow fee that the average U.S. short.
The most shorted smaller-cap stocks are:
Small, Micro & Nano Short Interest
Ticker
SI % Float
Fee
Short Interest
FISKER INC
FSR
42.18%
24.07%
$494,975,943
SPRINGWORKS THERAPEUTICS
SWTX
29.73%
0.30%
$417,346,323
WINNEBAGO INDS
WGO
22.43%
0.30%
$415,502,535
SUNNOVA ENERGY INTL
NOVA
27.94%
0.70%
$411,568,801
LUMINAR TECHNOLOGIES INC
LAZR
28.55%
5.57%
$407,646,640
PEBBLEBROOK HOTEL TR
PEB
20.74%
0.30%
$358,480,383
DISH NETWORK CORP
DISH
22.28%
0.30%
$335,563,217
NOVAVAX INC
NVAX
41.62%
12.57%
$327,434,711
TWIST BIOSCIENCE CORP
TWST
24.81%
0.30%
$322,892,251
ZENTALIS PHARMA
ZNTL
19.32%
0.30%
$315,865,709
BEAM THERAPEUTICS INC
BEAM
18.96%
0.30%
$296,939,504
VENTYX BIOSCIENCES INC
VTYX
20.57%
0.30%
$294,617,386
TG THERAPEUTICS
TGTX
19.99%
0.30%
$292,530,460
CLEAR SECURE INC
YOU
16.21%
0.30%
$288,203,301
ARCELLX INC
ACLX
22.11%
0.30%
$282,749,550
CARETRUST REIT INC
CTRE
14.29%
0.30%
$279,147,921
RHYTHM PHARMACEUTICALS INC
RYTM
21.65%
0.30%
$275,574,632
TRUPANION INC
TRUP
26.66%
0.70%
$274,951,373
ODP CORP
ODP
15.38%
0.30%
$274,683,406
BIOCRYST PHARMA
BCRX
20.84%
0.30%
$274,162,744
Small, Micro & Nano Short Interest
11.71%
2.22%
$71,826,229,960
Total U.S. Short Interest
4.78%
0.53%
$945,301,316,633
The most profitable year-to-date mark-to-market smaller-cap shorts are:
Most Profitable YTD Smaller-Cap Shorts
Ticker
Avg Fee
Short Interest
YTD P\L
P\L %
FIRST REPUBLIC BANK/CA
FRCB
19.85%
$285,137,541
$1,629,888,690
571.61%
SVB FINANCIAL GROUP
SIVBQ
23.42%
$320,704,709
$1,061,822,758
331.09%
SIGNATURE BANK NY
SBNY
1.25%
$152,798,988
$642,960,955
420.79%
LUMEN TECHNOLOGIES INC
LUMN
0.30%
$394,961,338
$538,540,370
136.35%
SILVERGATE CAPITAL CORP
SICP
30.96%
$85,010,308
$319,244,850
375.54%
DISH NETWORK CORP
DISH
0.30%
$392,867,458
$311,246,971
79.22%
ENVIVA INC
EVA
0.30%
$146,837,227
$278,195,390
189.46%
FOOT LOCKER INC
FL
0.30%
$338,880,794
$214,238,133
63.22%
BEAM THERAPEUTICS INC
BEAM
0.30%
$428,641,287
$194,778,055
45.44%
SUNPOWER CORP
SPWR
0.48%
$194,575,882
$180,893,711
92.97%
The least profitable year-to-date mark-to-market smaller-cap shorts are:
Least Profitable YTD Smaller-Cap Shorts
Ticker
Avg Fee
Short Interest
YTD P\L
P\L %
BEYOND MEAT INC
BYND
71.79%
$318,659,152
($183,877,371)
-57.70%
AEHR TEST SYSTEMS
AEHR
0.45%
$173,566,713
($148,638,690)
-85.64%
ROCKET COMPANIES INC
RKT
7.71%
$285,481,500
($119,669,040)
-41.92%
REDFIN CORP
RDFN
0.33%
$168,704,126
($106,969,259)
-63.41%
PAR TECHNOLOGY
PAR
0.32%
$168,063,687
($95,025,711)
-56.54%
EHANG HOLDINGS LTD ADR
EH
7.60%
$113,282,234
($89,453,651)
-78.97%
GOOSEHEAD INSURANCE INC
GSHD
0.30%
$123,368,312
($86,472,557)
-70.09%
DREAM FINDERS HOMES INC
DFH
0.92%
$81,098,721
($84,304,482)
-103.95%
LUMINAR TECHNOLOGIES INC
LAZR
4.90%
$432,805,804
($78,864,744)
-18.22%
BELLUS HEALTH INC
N.A.
1.67%
$87,221,923
($74,679,119)
-85.62%
YTD Smaller-Cap Short MTM P\L
1.87%
$85,572,054,459
$12,926,413,948
15.11%
The most profitable August\September mark-to-market smaller-cap shorts are:
Most Profitable Aug\Sept Smaller-Cap Shorts
Ticker
Avg Fee
Short Interest
Aug\Sept P\L
P\L %
TG THERAPEUTICS
TGTX
0.30%
$286,373,880
$231,447,032
80.82%
NIKOLA CORP
NKLA
78.11%
$272,285,666
$200,960,225
73.80%
LEMONADE INC
LMND
0.99%
$229,775,651
$141,701,459
61.67%
SUNNOVA ENERGY INTL
NOVA
0.69%
$431,155,086
$109,441,737
25.38%
RECURSION PHARMACEUTICALS
RXRX
0.30%
$199,514,956
$107,944,050
54.10%
BEYOND MEAT INC
BYND
44.67%
$281,076,318
$105,355,595
37.48%
SAGE THERAPEUTICS INC
SAGE
0.30%
$195,849,593
$104,505,110
53.36%
LUMINAR TECHNOLOGIES INC
LAZR
5.54%
$430,011,144
$103,235,878
24.01%
VIRGIN GALACTIC HOLDINGS
SPCE
3.09%
$185,679,214
$102,865,761
55.40%
DISH NETWORK CORP
DISH
0.30%
$378,268,993
$98,388,613
26.01%
The least profitable August\September mark-to-market smaller-cap shorts are:
Least Profitable Aug\Sept Smaller-Cap Shorts
Ticker
Avg Fee
Short Interest
Aug\Sept P\L
P\L %
RHYTHM PHARMACEUTICALS INC
RYTM
0.30%
$283,683,456
($94,205,358)
-33.21%
SABRE CORP
SABR
0.30%
$218,521,599
($56,100,338)
-25.67%
PAR TECHNOLOGY
PAR
0.41%
$182,319,133
($53,306,123)
-29.24%
IDEAYA BIOSCIENCES INC
IDYA
0.30%
$171,223,775
($42,021,291)
-24.54%
APPLIED OPTOELECTRONICS INC
AAOI
4.27%
$69,476,755
($36,935,145)
-53.16%
URANIUM ENERGY CORP
UEC
0.56%
$113,936,637
($31,982,282)
-28.07%
VITAL ENERGY INC
VTLE
0.30%
$210,630,816
($30,378,852)
-14.42%
EOS ENERGY ENTERPRISES INC
EOSE
7.81%
$90,120,802
($29,394,794)
-32.62%
ENERGY FUELS INC
UUUU
1.22%
$146,354,368
($25,845,150)
-17.66%
GUESS? INC
GES
0.44%
$171,020,438
($22,625,820)
-13.23%
Aug\Sept Smaller-Cap Short MTM P\L
$75,116,915,042
$9,737,066,151
12.96%
We’ve seen increased short selling in smaller-cap stocks with $658 million of net short selling over the last thirty days. The largest increase in short selling over the last thirty days are:
Small, Micro & Nano Short Selling
Ticker
SI % Float
Short Interest
30D Short Selling
ARCHER AVIATION INC
ACHR
21.26%
$192,298,196
$64,422,916
AIR TRANS SRVCS GRP
ATSG
9.16%
$110,846,095
$61,583,463
ALTERYX INC
AYX
8.11%
$147,856,133
$46,178,514
SAGE THERAPEUTICS INC
SAGE
18.21%
$192,652,428
$38,842,312
JBG SMITH PROPERTIES
JBGS
11.47%
$188,596,738
$36,171,142
PROCEPT BIOROBOTICS CORP
PRCT
10.18%
$167,328,567
$32,251,343
COLLEGIUM PHARMA
COLL
22.27%
$177,655,646
$32,173,500
PAGSEGURO DIGITAL LTD
PAGS
8.02%
$146,180,431
$30,396,504
HESS MIDSTREAM LP A
HESM
7.63%
$124,228,087
$29,246,773
VIRIDIAN THERAPEUTICS INC
VRDN
22.09%
$159,999,122
$28,565,972
The largest increase in short covering over the last thirty days are:
Small, Micro & Nano Short Covering
Ticker
SI % Float
Short Interest
30D Short Covering
PACWEST BANCORP
PACW
7.60%
$70,844,820
($62,857,141)
HIMS HERS HEALTH INC
HIMS
12.83%
$119,067,247
($30,881,492)
TRUPANION INC
TRUP
26.66%
$274,951,373
($29,485,527)
DYNAVAX TECHNOLOGIES
DVAX
11.30%
$205,136,847
($28,265,439)
IROBOT CORP
IRBT
10.83%
$109,261,169
($26,312,130)
RHYTHM PHARMACEUTICALS INC
RYTM
21.65%
$275,574,632
($23,992,899)
FISKER INC
FSR
42.18%
$494,975,943
($23,227,267)
FIVERR INTL LTD
FVRR
7.86%
$74,624,968
($22,208,415)
CLEAR SECURE INC
YOU
16.21%
$288,203,301
($19,439,952)
DAY ONE BIOPHARMACEUTICALS
DAWN
20.11%
$167,675,245
($18,324,379)
While large institutional short sellers may not be able to travel in these smaller-cap circles, retail and smaller AUM hedge funds should be able to take advantage of the recent outperformance of short selling in smaller-cap names.
Our Blacklight SaaS platform and Black App provides an up-to-date view of short selling and short covering on an equity, sector, index, or country-wide basis allowing investors\traders to better manage their existing long and short positions. The Black MaP and Black App products provide a total view of long and short positioning in the market with a breakdown between Active\Passive long investors, 24 Fund type entities, over 50k securities globally across 108 countries and data from 58 regulatory exchanges.