At the end of November last year I highlighted the fact the most shorted stocks had started to gain momentum at the beginning of October. Fast forward to the start of February and Refinitiv's U.S. Most Shorted Stock Index has continued to generate outsized gains. For the last four months the Refinitiv U.S. Most Shorted Index is up 92.8% versus 10.4% for the S&P 500 Index. Half of this gain has occurred in January with the Shorted Index up 40% as seen in the second chart below.
As noted in yesterday's post, Retail Traders Inflict Pain On Some Hedge Funds, some of the recent gains may be due to the increased attention being given to shorted stocks of prominent hedge funds. Nonetheless, this attention is resulting in more research firms providing lists of short selling targets, but chasing individual names in this strategy can lead to disappointing returns for investors.
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