In this update on the short selling of shares in Canadian public companies, we report on:
- Major developments in the short sales of Canadian ETFs
- Using short sales to screen for stocks to avoid or buy
- Largest short positions in small-, mid- and large-cap Canadian companies
- Short squeeze candidates
- End note on methodology and data sources.
Major developments in the short sales of Canadian ETFs
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In June, the BMO S&P/TSX Equal Weighted Banks ETF (ZEB-T) ETF continued its ascent, rising to 22.2 per cent of float short. In May, the short position in the ETF had skyrocketed to 16.1 per cent of float from 2.2 per cent the month before.
Commentary from the financial community suggests that the run-up in short selling may be tied to concerns that U.S. President Donald Trump’s steep tariffs could pull down sectors of Canada’s economy, leading to lower demand for bank loans as well as an increase in loan reserves and defaults.
The large short on the iShares S&P/TSX Energy ETF (XEG-T) may be related to OPEC+ announcing earlier this year an ongoing increase in its supply of oil, which could weigh on oil prices for some time. Also, three of the entries on the most shorted ETFs table track the Canadian stock market, indicating a higher degree of bearish sentiment on the direction of Canadian stocks.
Using short sales to screen for stocks to avoid or buy
Short sellers borrow stocks and sell them in hopes they can be bought back at lower prices and returned to the lending broker. Academic studies have found that stocks with large short positions tend to underperform, so short sales can be a tip-off of what stocks to avoid or otherwise carefully research before buying.
Short sales can also be a signal for stocks to research and buy. If there is a small short position, it could mean the company is less likely to see its shares decline (a caveat is that a small short position may reflect, especially in the case of small-cap stocks, market constraints, such as elevated borrowing costs or a low number of shares available for lending.
With this thought in mind, tables were calculated of mid- and large-cap stocks with the lowest levels of short sales. This may be a particularly relevant exercise at this time considering the forthcoming inflationary impact of President Donald Trump’s tariff policies is preventing the U.S. Federal Reserve from lowering interest rates to combat recent signs of a slowdown in the economy.
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Largest short positions in small-, mid- and large-cap Canadian companies
As mentioned, stocks with substantial short interest tend to underperform. That does not necessarily mean they should be avoided but thorough due diligence should be undertaken before buying.
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At the small-cap level, many of the usual suspects were in the line-up for the month of June, notably Air Canada (AC-T), Canada Goose Holdings Inc. (GOOS-T) and Energy Fuels Inc. (EFR-T). While Air Canada and Canada Goose have received air time in past columns, Energy Fuels Inc. has flown under the radar. Let’s take a look at the company in this column.
Energy Fuels is a leading miner of uranium in the United States. Government policies and attitudes toward nuclear power have become more favourable, leading to an expansion in nuclear facilities and rising demand for uranium. The company is also attempting to diversify into rare earth elements.
Yet, Energy Fuels reported a loss of 8 cents per share in the first quarter of 2025, falling short of analysts’ expectations. Also, the consensus view is for losses of 22 cents per share in 2025, and a decline in sales to $33-million compared to the past 12 months
Diversification into rare earth elements has increased costs while revenues took a hit from commodity price fluctuations. Recent issues of shares to fund projects have also diluted shareholders. Zacks Value Score assigns a Growth Score of F to the company, indicating major overvaluation.
The company’s property in the United States is located near First Nation communities and faces risks related to indigenous issues and environmental impacts. Energy Fuels also faces competition from larger global rivals, such as Cameco Corp. in uranium, and Chinese producers in rear earth elements.
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TMC The Metals Co. Inc. (TMC-Q), an early stage deep-sea mining company seeking to harvest nodules of critical metals from the sea floor, has seen its short position rise to 10.2 per cent of float in June, from 6.6 per cent at the start of 2025. Over the same period, its stock has soared to US$6.55 from US$1.05.
Give credit to President Trump’s crusade for faster regulatory approvals of deep-sea mining projects. And more recently, South Korea-based Korea Zinc sparked a sudden 50-per-cent jump in the stock price when it announced an injection of US$85.2-million into the company in exchange for a major stake in the company.
All of which goes to show that short sellers are not always right, only on average. As you may recall, last month’s update on short sales reported that activist short seller Iceberg Research went short TMC The Metals Company and issued a sell report in the middle of May, Ouch, that much have hurt.
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The short position in insurer Great-West Lifeco Inc. (GWO-T) bounded upwards in June to 11.2 per cent of float, way higher than the 4.3 per cent recorded in May. Another insurer, Manulife Financial (MFC-T) joined Great-West on the top 10 list, its short position escalating to 5.8 per cent of float from 3.0 per cent in May.
Great-West Life and Manulife have long been solid companies, so the short selling could be some kind of arbitrage operation or a high-level pairs trade by hedge funds, where short positions on the life insurers are combined with long positions on sectors expected to perform relatively better.
Such a pairs trade can make sense when recessions occur and sink the stock market, undermining the insurers’ wealth management sidelines. Recessions also drag down interest rates, which lowers the income received from the bonds held by insurers (a major part of their investment portfolios); it also requires putting aside greater reserves for annuities and other products with guaranteed pay-outs.
Short squeeze candidates
Whenever some event or tipping point causes short sellers to close their positions in a hurry, the result can be a spike, or squeeze, in the stock price as they rush to buy and return the stock that was borrowed. Data firm S3 Partners has created an algorithm, the Short Squeeze Score, to rank companies by the likelihood of a short squeeze, with 100 being the highest probability and 0 being the lowest.
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End note on methodology and data sources
S3 Partners was the main source for short-sales data. It was selected because Canada has many companies interlisted on the U.S. and other exchanges, and S3 Partners sums short positions (currency-adjusted) across both countries. Other data sources for short sales data don’t do this.
A cutoff was applied to exclude companies whose short positions were miniscule in dollar value. The percentage of a company’s float (freely traded shares) is used instead of the percentage of outstanding shares to provide a better gauge of bearish sentiment.
Note that short positions, regardless of data source, may not be purely bearish bets because of trades made for hedging or arbitrage reasons.
Larry MacDonald is a regular contributor to the Globe and Mail, and author of several business books, the latest being The Shopify Story