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There are charts from GS or JPM (I can't remember which one) which show the performance of the most shorted stocks in the market. It's a straight line down (som

There are charts from GS or JPM (I can't remember which one) which show the performance of the most shorted stocks in the market. It's a straight line down (something like -7% annualized) and it also underperforms during crashes like 2008, 2020... Even including gamestop and AMC you only see a tiny rally in 2021 but the general line is down. Meaning it is a very effective hedge against the stock market. The explaination could simply be that mainly only smart money short stocks, and they tend to be pretty good at figuring out issues in companies that are not yet fully priced in. If I were to run a short ETF, I would add filters such as market cap, short interest and day to covers to avoid liquidity issues and squeezes, and/or play it through options structures. Like, it would have been stupid to be short GME when it had 300% of float as short interest. But it is probably fine in a lot of case with a sufficiently low day-to-covers and short interest. A more active strategy would be to monitor the Fee Rate which gives a good indication of the stock supply and is more "real time" than short interest data which often lags a few days/weeks.

dmurray 4y ago
> It's a straight line down (something like -7% annualized) So if you pay 3% borrow costs you do worse than putting your money in Treasuries? 3% seems conservative for the most shorted stocks, I checked a few on [0] - TSLA 0.25%, WE 4%, AMC 143%. Uncorrelated returns are great but this is not the most compelling sales pitch for a short fund. Better to use this information to underweight those stocks in your long portfolio. [0] https://companiesmarketcap.com/tesla/cost-to-borrow/ https://companiesmarketcap.com/tesla/cost-to-borrow/
- bionsystem 4y ago
  All of my shorts are 0.5% or below, most of them are 0.25%. I also said you would have to monitor fee rates. And market cap as well (for example AMC would be too small in your example). Treasuries are quite correlated with the stock market as both depend on liquidity, so it's not exactly a hedge, although they tend to do better during recessions, they will go down during unexpected hikes.

dmurray 4y ago

> It's a straight line down (something like -7% annualized) So if you pay 3% borrow costs you do worse than putting your money in Treasuries? 3% seems conservative for the most shorted stocks, I checked a few on [0] - TSLA 0.25%, WE 4%, AMC 143%. Uncorrelated returns are great but this is not the most compelling sales pitch for a short fund. Better to use this information to underweight those stocks in your long portfolio. [0] https://companiesmarketcap.com/tesla/cost-to-borrow/ https://companiesmarketcap.com/tesla/cost-to-borrow/

bionsystem 4y ago
All of my shorts are 0.5% or below, most of them are 0.25%. I also said you would have to monitor fee rates. And market cap as well (for example AMC would be too small in your example). Treasuries are quite correlated with the stock market as both depend on liquidity, so it's not exactly a hedge, although they tend to do better during recessions, they will go down during unexpected hikes.