Here’s an ugly chart for you. If you think the last several weeks/months have been difficult for your portfolio, just be thankful that you (hopefully) don’t own a basket of the stocks with the highest levels of short interest. The charts below are from our semi-monthly report on short interest (available to Premium and Institutional members) and show the cumulative performance of the most and least heavily shorted deciles of stocks in the S&P 1500. Each basket is rebalanced on a semi-monthly basis when the updated short interest figures are released.
While the two baskets of stocks performed similarly to each other in early 2014, beginning in the middle of that year, stocks with the highest percentage of short interest really began to stumble. Ever since then, their performance has continued to deteriorate. Through this afternoon, the decile of stocks with the highest short interest has declined over 30%, while the decile of stocks with the lowest short interest has seen a gain of nearly 10%. In the lower chart, we show the spread between the two baskets of stocks, and for nearly two years now it has practically been a 45-degree line down to the right with the most shorted stocks underperforming the least shorted stocks by over 40 percentage points!