Traders on the NYSE floor, June 24, 2022.
Source: New York Stock Exchange
According to S3 Partners, traders who shorted stocks in 2022 won big.
Short stocks returned 30.8% in 2022, said Ihor Dusaniwsky, managing director of predictive analytics at the firm. This meant short selling outperformed the broader market, which suffered its biggest losses since 2008. Dow Jones Industrial Average, S&P 500 When NASDAQ Composite Last year they decreased by 8.8%, 19.4% and 33.1% respectively.
Dusaniwsky said U.S. short sellers posted $300 billion in mark-to-market gains against an average short interest rate of $973 billion.
But even with a big win in 2022, short selling still lags behind in recent history. Over the past five years, short-selling has averaged an annual loss of 4.4%, while the Dow is up 6.8%, the S&P 500 is up 9.3% and the Nasdaq is up 12.5%.
Short holding performance over the last five years
|Dow return (%)||S&P 500 Returns (%)||NASDAQ Returns (%)||short return|
|5 year average||6.8||9.3||12.5||-4.4|
sauce: S3 research
When an investor “shorts” a stock, he or she borrows the stock from a broker and sells it in hopes of buying it back later at a lower price. This is the most effective tactic when the whole market is under attack. Short-selling returns underperformed major indices when the market rose from 2019 to 2021, but were above average in 2018 when the market fell.
Total short sales last year were below the $1 trillion threshold in 2021, but still higher than they were in 2018-2020.
Dusanivsky said shorting should still be a good stock picker in 2022 because different sectors and holdings can have very different outcomes.
For example, telecom services stocks were the most shorted sector last year, with short stock returns of 56.7%. According to S3 Partners, Energy was the worst, with his shorted holdings posting a 28% loss.
Short-term and long-term performance are usually opposite. The reason for this is that investors typically short holdings that they expect to lose value, and energy, the only winning sector in the S&P 500 in 2022, has rallied despite the overall market decline. Not a short selling target as investors see the .
And given the diversity of each stock, choosing sector orientation is only half the battle. For example, among consumer necessities, Beyond Meat The short sale had the largest return of 128.2%.french fries producer Ram Weston It was the least profitable in its division, losing 43.9%.
Calvanawhich fell as demand for used cars fell, posted the best short performance of all stocks, posting a 377.6% gain with short interest rates at least $100 million.
Conversely, Madrigal Pharma It was short and bad. A bet against the company lost 345.4%. Shares rose in December on the back of favorable clinical trial data.