Technology groups account for half of the 20 most shorted companies in the US stock market
The S&P 500 technology index suffered a setback last week, but has still climbed more than 21 per cent in 2017, driving this year’s broader stock market rally. The so-called Faang stocks — Facebook, Apple, Amazon, Netflix and Google — account for much of those gains.
Yet some investors are sceptical the rising valuations can be sustained, and are ratcheting up their shorts — betting on share falls by borrowing shares to sell them and rebuy at a later date — on a host of big names.
“A lot of the tech names have led the market all year, and people are getting a little concerned,” said Wayne Wicker, chief investment officer of ICMA-RC, a pension fund. “Tech tends to lead the market up, but also down, and it wouldn’t be surprising if we start seeing some weakness.”
Tech companies account for half of the 20 most shorted names in the US stock market, with the level of short interest in the “tech 10” rising another $1.4bn in the past month to $41bn, according to S3 Partners, a financial analytics company.
Google, Apple, Netflix, Amazon, Intel and Facebook are all in S3’s list of the 10 most-shorted US stocks. IBM, Microsoft, Priceline and Nvidia are in the top 20. If electric carmaker Tesla, comfortably the most shorted stock in the US, is counted as a tech company, the short interest would rise to more than $50bn.
“We’ve never before seen half-trillion dollar companies growing at these rates, so people are still in disbelief about this,” said Eric Bannasch, founder of Cadian Capital, a tech-focused hedge fund. He points out that many tech companies are growing at a robust clip, but “understands the scepticism” around Tesla in particular.
Underscoring the scepticism, Dan Loeb’s Third Point’s has ditched its stake in Snap, the company that owns messaging app Snapchat, according to a regulatory filing released on Friday. Snap’s shares have dropped about 30 per cent since listing in March.
Betting against the tech industry has mostly been painful this year. Despite the losses several big tech stocks suffered last week, S3 estimates that the “mark-to-market” losses on the 10 biggest tech shorts now stand at $7.7bn this year. Tesla alone has inflicted a $4.5bn loss on bearish investors in 2017.
Greenlight Capital’s David Einhorn is one of the hedge fund managers who has bet against Tesla and a broader number of stocks he has called “the bubble basket”, but admitted this year that “it’s painful for the shorts”.
Tesla founder Elon Musk has occasionally taunted short sellers: in April he tweeted “stormy weather in Shortville”, and this summer he said “these guys want us to die so bad they can taste it . . . Just wish they would stop sticking pins in voodoo dolls of me.”