Not every investor is betting on shares going up. Sometimes investors will choose to “short” a particular share in the hope of profiting from it dropping in value.
Investors that take short positions will borrow shares to sell on market with the aim of buying them back at a cheaper price in the future. Whilst the strategy can be very successful, it is not without its risks and has the potential for unlimited losses.
Because of this short sellers will typically only take short positions if they are extremely confident that the shares they are shorting are going to drop in value. As a result, I believe it is prudent for investors to keep a close eye on short interest levels.
The top ten most shorted shares on the ASX as of September 28 according to data provided by ASIC are as follows:
- Myer Holdings Ltd (ASX: MYR) continues to be the most shorted share on the ASX with 16% of its shares held short currently. Clearly the market isn’t expecting the struggling retailer’s turnaround strategy to be successful.
- Worleyparsons Limited (ASX: WOR) has seen a slight increase in short interest this week. Approximately 15.3% of the engineering company’s shares are being shorted currently, up from 15.2% last week.
- Western Areas Ltd (ASX: WSA) has seen its short interest rise once again. Currently 13.7% of the nickel producer’s shares are held short – despite nickel prices surging in the last couple of weeks.
- Metcash Limited (ASX: MTS) shorts have reduced slightly from last week. The percentage of the wholesaler and distributor’s shares which are held short dropped to 11.8% from 12.4%.
- Bellamy’s Australia Ltd (ASX: BAL) has once again seen an increase in short interest. This week 11.5% of the organic infant formula producer’s shares are being held short, compared to 11% last week.
- Monadelphous Group Limited (ASX: MND) is yet again under pressure from short sellers. The percentage of shares of this mining services company which have been shorted has risen to 11.2% this week.
- Cover-More Group Ltd (ASX: CVO) now has 10.5% of its shares being shorted, up from 9.6% last week.
- Flight Centre Travel Group Ltd (ASX: FLT) continues to be a favourite of short sellers. Short interest in the leading travel agency has remained steady at around 10.4%
- Alumina Limited (ASX: AWC) has 9.1% of its shares held short. Even though the miner settled its dispute with US mining giant Alcoa recently, short sellers continue to target the company.
- TFS Corporation Limited (ASX: TFC) is a new addition in the top 10 with 8.9% of its shares held short. Short interest in the sandalwood plantation manager has been building slowly in the last few months.
If this has put you off investing in any of the top 10 shorted shares then I would highly recommend taking a look at investing in one of these rapidly growing shares instead. Each has the potential to bolt higher in the months ahead as far as I'm concerned.
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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.