In this September update on short interest in Canadian public companies, we report on:
- The stocks with the highest short sales are scoring sizeable price gains
- Largest short positions in stocks
- Largest changes in short positions over the past 3 months
- Largest short positions in ETFs
- Short squeeze candidates
- A short-sale contest!
- A hedge fund manager’s lament on short selling in 2025
- Methodology and data sources.
The stocks with the highest short sales are scoring sizeable price gains
The Goldman Sachs Most Shorted Stocks Index is going ballistic. The index tracks an equally weighted basket of 50 stocks with the highest short interest relative to float, so it tends to be made up of low-quality U.S. stocks — but since U.S. President Donald Trump’s announcement of the “Liberation Day” tariffs on April 2, the index has gained more than 80 per cent, doubling the S&P 500.
The Liberation Day tariffs caused a sharp selloff in the stock market but as the fear of a cataclysm subsided over the following months, investors dove back into stocks again. The wave of buying squeezed the short sellers into buying stocks to cover their shorts, giving the prices an extra lift. And as the “meme stock” and related phenomena show, many investors deliberately targeted highly shorted stocks to squeeze the short sellers.
Canada doesn’t appear to have an index similar to the Goldman Sachs Most Shorted Stocks Index, so I attempted to develop one. It is still quite preliminary and subject to further refinement but the Canadian Index of the Most Shorted Stocks is up 12.7 per cent since April 2, which is just about half of the appreciation in the S&P/TSX Composite Index. Why less than the U.S? Perhaps because President Trump’s tariffs were mainly a U.S. matter, and Canada doesn’t have as big a community of “meme stock” investors trying to squeeze the shorts.
Largest short positions in stocks
Short sellers borrow stocks and sell them in hopes they can be bought back at lower prices and returned to the lending broker. Although there are times when the prices of shorted stocks outperform due to short squeezes, academic studies have found that stocks with large short positions tend to underperform over the longer run. on average.
-
-
Saskatoon-based drone manufacturer Draganfly Inc. (DRPO-CN) has 36.2 per cent of float sold short, the highest percentage of all Canadian companies. Yet, the company operates in a field with expanding opportunities for growth. This stock may be an edge case where the percentage-of-float-short metric overstates bearish sentiment — Draganfly’s float of 5.4 million shares is tiny, so it wouldn’t take much for a small short position to become a high percentage of float.
Largest changes in short positions over the past 3 months
Trends over time in short positions can be informative. A strong uptrend over the preceding 3 months or longer is a red flag pointing to rising bearishness and vice versa, a strong downtrend likely signals indicates less bearishness. Interestingly, many of the stocks with the largest decreases in short positions were in the most shorted category in prior months. This may reflect short sellers seeking to cover and derisk their position in an environment where short squeezes are more prevalent.
-
-
-
Largest short positions in ETFs
Both the BMO S&P/TSX Equal Weight Banks ETF (ZEB-T) and iShares S&P/TSX Energy ETF (XEG-T) remain at the top of the most-shorted list for ETFs.
-
-
For the energy ETF, the fear may be that oil prices could continue sliding given OPEC+ has committed to raising output, and green energy projects are mothballed. As for the bank ETF, a concern may be that there could be a rise in loan defaults due to i) Mr. Trump’s tariffs triggering a downturn in the Canadian economy and ii) a downturn in the housing market and mortgage lending, led by weakness in the Toronto and Vancouver condo scenes.
Short squeeze candidates
If the meme stock craze ever spills into Canada, we have an early warning system for stocks that could be targeted: the short-squeeze rankings compiled by data-firm S3 Partners (its algorithm, the Short Squeeze Score, assigns a score of 100 to companies with the highest probability and a score of 0 to those with the lowest).
Leading the way with the highest squeeze score possible (100.00) are: D-Wave Quantum Inc. (QBTS-N), NexGen Energy Ltd. (NXE-T) and Draganfly Inc. (DPRO-Q).
-
-
A short-sale contest!
Most of us have seen stock-picking contests in the media. But I had never seen a short-selling contest — until now. Forbes columnist John Dorfman runs one every year and just reported on the results of last year’s contest. There was a two-way tie for first place, on a stock that went to zero; the second-place finisher had his stock tumble by 98 per cent. First- and second-place contestants said that what initially led to their picks were the companies previously doing reverse stock splits. So, add another red flag to your collection of telltale signals.
One of the winners also won the year before. He is currently bearish on “in-vogue consumer brands that are faddish,” examples being Pop Mart International Group (the company that makes the Labubu dolls) and Sanrio Co. (which makes Hello Kitty merchandise).
A hedge fund manager’s lament on short selling in 2025
In a recent memo to clients, Calgary-based hedge-fund manager Julian Klymochko writes: “The current surge in frenzied speculative trading in the stock market has devastated short sellers. So much so that pure short sellers have seemingly completely died off — victims of the outperformance of junk stocks over the past several years.”
But some pure short sellers are still hanging in. For example, activist short seller Jehoshaphat Research issued Sept. 22 a negative report on goeasy Ltd. (GSY-T), a non-prime leasing and lending services company headquartered in Mississauga, Ontario.
Nonetheless, faring somewhat better are the short sellers who, like Mr. Klymochko and his Accelerate group of funds, make hedged bets by pairing their shorts against long positions. These are the kinds of bets that are more like arbitrage trades, not bearish stances so much. Moreover, as the bull market frenzy carries on, the proportion of short sales in the hedging category rises relative to the pure bets — thus, large short positions at this time may be less often a clear bearish sign than they would be at other times in the market.
In recent correspondence with clients, Mr. Klymochko provided, among other things, his usual ranking of U.S. and Canada, based on his proprietary AlphaRank system that assigns a number from 0 (bottom-ranked) to 100 (top-ranked) to each of five factors (value, trend, quality, price momentum and operating momentum). Here is his table of the 10 bottom Canadian stocks and their aggregated AlphaRank scores.
-
-
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. He is also the author of The Shopify Story and writes a blog on Shopify, called Shopify’s Journey
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.