Once Bitten, Twice Shy? – GME and AMC, the saga continues?
Nine months on from when GME and AMC became the poster children for meme stock activism, it is a good time to analyze where the professional short players now sit as they were so negatively impacted last time. Indeed, Herb Greenberg of Pacific Square went on CNBC in January to declare that ‘short selling is dead’. Since January, GME and AMC have been joined by a plethora of other meme stock names but have remained at the forefront of everyone’s mind. Both enterprises have vaunted new strategic visions but what is the underlying sentiment of the professionals?
Using data supplied from Data Insights by Hazeltree, we are able to understand the true asset manager stance, including fees and long/short ratios held by Hazeltree’s community of contributors.
Reviewing Gamestop for the year, the first chart shows the securities lending volume (courtesy of FIS Astec Analytics) plotted against Hazeltree’s Enso (HT ENSO) borrow fee rate. This clearly depicts the precipitate reduction and the closing out of short positions in January and the concomitant collapse in the cost of borrowing (from a high of close to 30% pa to well below 5% which is where it has stayed). Since that time, the volume of borrowed securities has remained stubbornly low as seemingly the short side have avoided getting back into the short positions (less than one fifth of the previous open institutional stock lending positions from 50 million to sub 10 million shares).
However, the following chart shows that many asset managers have in truth started to go back into positions in some way. Hazeltree’s long and short data for the buyside reveals that multiple players have re-initiated short positions the security and not simply limited to one or two more courageous or foolhardy ones. Their fundamental analysis of the company still wins out. On the long side, the number of long holders has also increased but not back to 2020 levels or indeed as much as the short side.
So, the amount of short selling would appear to be lower as shown by the smaller amount of securities being borrowed to support these positions but there still appears to be a wide community of short sellers out there. How can this be? When the market value of those short (and long) positions are factored in we can see that the amounts devoted to these are nowhere near as high as they were before January. The chart below lays this bare in a VERY obvious way.
Although AMC was included in the initial ‘Meme stock’ phenomenon, the story since January has been somewhat different from the perspective of the professional short side of the market. There has been a steady and unrepentant increase in borrowing of securities although, due to the liquidity of availability, the borrowing fee rate has stayed at lower levels than the super-hot ones earlier in the year. Institutional lending has more than doubled from around 50 million to 100 million shares although it did peak at the height of the concerns over new strategic plans and for regular cinema attendance with the concomitant consumption of high priced pop-corn et al. The HT ENSO fee rates are now in the warm to GC range from their peaks of 80-100% pa again with the bump in the summer months of 2021 to 20% pa.
In terms of the position holders, there remains a stable coterie of long holders (albeit of a very small market value – see below) whereas the short selling community appear to be increasing their interest in a more traditional approach to a perceived overvalued company.
Furthermore, in terms of the market value devoted to such positions, this has also increased in leaps and bounds in a totally contrarian way to GME. Therefore, both in terms of trends in outstanding and short position growth, AMC has moved along a different path to GME.
Setting aside the headline discussions around the viability of the proposed new strategic directions for each of these companies, it is probably safe to assume that the sentiment from the underlying asset managers regarding the medium and long term future for both of them has not changed from January. What DOES appear to have changed however is some sort of assessment as to retail action depending upon a perceived build-up of an asset manager assault on the share price of either. There seems to be a generally-held view among the hedge funds that the social media driven support for Gamestop by the retail army is more resilient and responsive than for AMC hence the slow build-up of short positions for Gamestop and the more aggressive approach for AMC. One thing is clear; that while shorting may not be dead, it now has an additional layer of analysis to be factored in to the equation.