Professional investors and hedge funds can attempt to improve total returns by betting that some share prices will fall. They can do this by short selling shares in the expectation that they can buy them back at a later date in the future to book a profit.
Professional investors tend to do more research than mum and dad investors as well, so it can be worth taking a look at what ASX shares they're betting most heavily on falling. All stats accurate as at October 26 2018 according to ASIC.
Afterpay Touch Group Ltd (ASX: APT) has 5.4% of its shares shorted, as the fast-rising buy now, pay later, business attempts to expand its successful Australian model into the giant US and UK markets. Afterpay has some regulatory risks, but this is a short for brave investors.
AMP Limited (ASX: AMP) has 6.4% of its outstanding shares shorted. The diversified financial services business is all at sea as a result of the fallout from the Royal Commission. Some of its wealth management units are also seeing heavy net cash outflows that may be encouraging short sellers.
Bank of Queensland Limited (ASX: BOQ) has 7.6% of its shares shorted as house prices fall across Australia and the central bank maintains rates at an ultra-low 1.5%. The relatively weak outlook for the Queensland economy is probably also encouraging short sellers.
Bellamy's Australia Ltd (ASX: BAL) has 8.8% of its shares shorted after a mixed trading update recently. It's also still awaiting full approval to sell its infant formula in China over the long term – a fact probably encouraging short sellers.
BWX Limited (ASX: BWX) has 12.2% of its shares shorted after a horror 2018 that saw a dubious takeover bid, the CEO quit and sell his shares, while the company warned operational performance for the first half of FY 2018 has been weak.
Challenger Ltd (ASX: CGF) has 5.7% of its shares shorted probably because short sellers are betting against its business model that relies on generating sufficient investment returns to match off against its liabilities at a profit.
Domino's Pizza Enterprises Ltd (ASX: DMP) has 11.5% of its shares shorted as investors bet its overseas growth strategy in regions like Japan, France and Germany may not deliver the growth management has forecast. The stock is also arguably expensive on valuation grounds.
Galaxy Resources Limited (ASX: GXY) owns the Mt Cattlin mine in Western Australia, with substantial lithium tenements in Sal de Vida in Argentina. It has 16.3% of its shares shorted which suggests traders are betting against lithium prices and its production capacity.
IOOF Holdings Limited (ASX: IFL) is the financial planning business that recently bought ANZ Bank's OnePath financial advice business for around $1 billion. Short sellers may be betting against the success of this deal.
JB Hi-FI Limited (ASX: JBH) has 19.8% of its shares short sold, which is a high amount for a business performing outwardly respectably. Short sellers are probably betting Amazon eats into its market share, among other issues.
