The chart below can be downloaded here.
The Thomson Reuters U.S. Most Shorted Index tracks the performance of U.S. stocks with the highest short interest. The index is currently comprised of 49 securities each with an approximate weight of 2%. Since mid-April, the index has outperformed the S&P 500 by a breathtaking 15% (+19% vs. +4% for the S&P 500). Putting that in context, a simple ratio of the two indexes is currently greater than one standard deviation from its trend-line (tied for the widest divergence since inception). In addition, the Most Shorted Index sits at an all-time high while the S&P 500 remains about 4% below it’s all-time high set on January 26.
The Index has a total market capitalization of just over $300 billion (see chart below for the five constituents with the greatest market capitalization), but a median market capitalization of just $2.5 billion. We believe this is partly behind the spectacular outperformance of smaller cap companies vs. their larger peers. Other reasons include the stronger U.S. dollar and trade tariffs hurting multi-national companies at the competitive benefit of smaller companies.
As the second quarter comes to a close, the performance differential of fundamentally challenged and less stable companies relative to the broad market comes at an interesting juncture. Earnings season begins in just a few weeks and will help determine if this recent relative outperformance is justified.
H/t to Callum Thomas for first bringing this index to our attention.
SpringTide Partners, LLC is a Registered Investment Advisor with the state of Illinois and other states jurisdictions where required. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. All information contained herein is for informational purposes only and does not constitute a solicitation or offer to sell securities or investment advisory services. All investing carries risk including risk of principal loss. All statements made on this website are opinions of SpringTide Partners, LLC and are subject to change. SpringTide Partners, LLC assumes no responsibility towards the accuracy of the data included. Statements made on website shall not constitute investment advice.