Hedge funds cut bets against Canadian retailers as e-commerce boom lifts some gloom

Leons Furniture

02/12/2020 11:00

By Maiya Keidan
    TORONTO, Dec 2 (Reuters) - Hedge funds trimmed short bets
against some Canadian retailers in the second half of November
after some companies rode a boom in e-commerce to beat profit
expectations despite the COVID-19 pandemic, regulatory filings
showed on Tuesday.
    The number of short trades as a percentage of total traded
volume for Canadian Tire Corp Ltd  CTCa.TO  fell to just 2% for
the second half of November, from approximately 7% for the first
half of last month, data in the filings reviewed by Reuters 
showed.
    The fall came as the automotive, home and sporting goods
retailer reported online sales rising more than two-fold in the
third quarter.  urn:newsml:reuters.com:*:nL4N2HR301
    Short positions against discount retailer Dollarama Inc
 DOL.TO  fell to 20.7%, from 21.7%, over the same period, while
also falling in women's retailer Aritzia  ATZ.TO  to 20.1%, from
31.4%, the data showed. 
    Dollarama and Aritzia have not yet reported third-quarter
results.
    Furniture retailer Leon's  LNF.TO , which also saw a
significant increase in online sales in the third quarter, saw a
fall in shorts to 4.9%, from 5.2%.
    "The theory behind shorting these companies is fairly simple
but it has been a losing trade since the March low," said Jesse
Gamble, senior vice president and portfolio manager at
Toronto-based Donville Kent Asset Management. 
    Canadian Tire shares rose 14.6% in the second half of
November while Dollarama increased 7.2% and Artizia and Leon's
rose 0.4% and 4.4% respectively.
    "Over the past nine months, retailers have done a much
better job transitioning to online sales and curbside pickup
than many thought possible," Gamble said.
    "Those that were short would have been predicting a much
weaker consumer than what materialized and also a much longer
timeline until there was a successful vaccine."
    While overall retail sales this year are down, e-commerce
retail sales have boomed amid the pandemic, jumping 74.3% in
September on a year-over-year basis, according to Statistics
Canada.
    "Even for categories experiencing weak growth in 2020, such
as apparel, investors are now looking through the pandemic,
given the positive vaccine data released over the past month,"
said David Greenwald, associate portfolio manager at
Toronto-based Waratah Advisors.
    Easing of lockdown restrictions in the third quarter helped
household spending rebound 13% after dropping 13.6% in the
previous three months. But new restrictions could hurt retail 
sales.
    So-called short-selling is a hedge fund trading strategy
driven by speculation a stock price will fall. Usually the fund
borrows shares from an institutional investor and sells them on
the open market, planning to buy them back later for less money
and pocketing the difference.

 (Reporting by Maiya Keidan, additional reporting by Julie
Gordon
Editing by Denny Thomas and Tom Brown)
 ((Maiya.Keidan@thomsonreuters.com; 44 207 542 1594; Reuters
Messaging: maiya.keidan.thomsonreuters.com@reuters.net))