New rules highlight short-selling by traditional long-only investors

Research finds ‘surprising’ number of short positions from long-only investors

BlackRock Investment Management tops the list of EU short-sellers, despite its image as a long-only investor, says market intelligence provider Ipreo.

The first pan-EU regulations on short-selling, introduced in November and applying to all securities with a principal trading venue within the EU, banned naked short-selling and imposed strict disclosure requirements, allowing Ipreo to look at exactly where short-selling is happening and who is doing it.

Announcing its new white paper on the subject, Ipreo states: ‘As an examination of investor holdings in the wake of the recent regulatory changes, Ipreo has surprisingly found that many institutional investors traditionally identified as long-only in fact possess some very large short positions.’

Of the 336 shorts made by the top 20 EU short-sellers, BlackRock accounts for 85, with AQR Capital Management and Oxford Asset Management its nearest competitors with 27 shorts each.

'BlackRock Investment Management is viewed by most IROs as a traditional long-only investor and indeed most of their EUM is invested as such,' explains Sudarshan Setlur, global markets intelligence director at Ipreo.

'But BlackRock’s UK office hosts EUM in hedge funds that is the sixth largest in Europe, with the ability to take on large short positions. This is exactly what we saw at the end of 2012 when BlackRock disclosed short positions in 85 EU stocks of more than 0.5 percent of share capital in each. We also see the likes of JPMorgan Asset Management and  Wellington Management disclosing large positions, though not as many as BlackRock.'

The research also looked at short-selling on a regional, industry and company-specific basis, finding that the majority (45 percent) of current shorts are UK-listed companies, followed by German firms (15 percent).

In terms of shares outstanding, German technology company Aixtron tops the list, with seven major short-sellers shorting more than 15 percent of its shares outstanding, according to Ipreo. Researchers note that US firm Veeco Instruments, Aixtron’s ‘key rival’, is also a heavily shorted stock.

‘Nokia leads the list of issuers with the most short-sellers – more than 0.5 percent,’ adds Ipreo. ‘Nokia’s problems competing with Apple and Samsung are well known and appear to be the cause for the pessimism.’

The research also suggests that with small and mid-cap companies more likely to be exposed to the EU downturn, these firms are shorted more than larger companies. Those in consumer services are shorted most, followed by industrials and the technology sector, according to the study, which looked at 1,644 filings made since the new rules came into effect. Notification must be made when short-selling 0.5 percent of outstanding shares, with additional disclosure for any increase or decrease of 0.1 percent or more. Of the total filings, 1,041 were amendments.

‘Knowing the identity of anyone who is short more than 0.5 percent of your share capital is as important as knowing the identity of anyone who is long 0.5 percent,’ says Setlur. ‘As IR wants to learn why an investor is long/optimistic they should also try to understand why someone is short/pessimistic. Tracking the total of all major shorts in your stock will give you an idea of the size and extent of the negative sentiment in your stock,’ he adds. ‘You can compare it with the shorts in your peers and discern if it’s a sector-wide problem or something company-specific.’

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