Last year was a tough one for U.S. short sellers, who ended the year with losses of $217 billion on a marked-to-market basis.
S3 Partners, which tracks short sellers, said that short sellers had a 14.75 percent loss, compared with a gain for the S&P 500 of 16.39 percent.
“Most short positions were unprofitable, with 70 percent of every dollar shorted being losers,” said Ihor Dusaniwsky,head of predictive analytics at S3 Partners.
That’s not surprising: “In a rising market it is inevitable that the short side is a drag on a portfolio’s profitability,” he said. “But it is unavoidable, since a leveraged hedge fund portfolio requires both long-side and short-side bets. The more leverage a hedge fund requires, the larger the short book they need to build.”
He noted that “the majority of these short positions are in larger cap names which act as a hedge to offset the general market risk of a portfolio, or its beta, while a smaller portion of their short portfolio are their alpha bets, those positions which hopefully add profitability to the bottom line.”
The biggest loser for short sellers was Nvidia, accounting for almost $11.5 billion in losses, or 32 percent of the total short interest. Like Nvidia, the next-biggest losers were also part of the so-called “Mag 7” stocks that accounted for an estimated 75 percent of the overall market’s rise last year. They include Alphabet, creating losses of $7.9 billion, for 56 percent of the total short interest; Tesla, which accounted for $7 billion in losses, or about 27 percent; and Palantir Technologies, creating losses of $5.6 billion, or 75 percent.
Dusaniwsky said shorts like Nvidia and Tesla are more of a portfolio hedge than a profit maker.
But there were some big winners for the short sellers, as well. The biggest was Microstrategy, where shorts made $3.2 billion, or nearly 40 percent of the total short interest. Short sellers also made money in UnitedHealth Group, taking in $1.5 billion, or 35 percent. Some other big-name winners were PayPal Holdings, making $974 million, or 42 percent, and Apollo Global Management, making $784 million, or about 18 percent.
“There was more short selling in larger cap names than smaller cap names,” said Dusaniwsky, noting that 77 percent of every dollar shorted was in mega- (those with a market cap greater than $200 billion) and large-cap names. He said that is because “larger hedge funds cannot trade in smaller cap names due to their large AUMs and limitation on the number of securities they can effectively manage in their portfolios.”
Most of the short exposure may have been in the larger cap stocks, but short sellers performed better in smaller cap stocks. While losing more than $200 billion in mega- and large-cap names, shorts made $5.6 billion in small-cap stocks and another $1 billion in nano stocks, which are those with a market cap of under $50 million.
“With hedge fund leverage rising — short exposure increased from $1.3 trillion to $1.7 trillion in 2025 — we are seeing more names being shorted in smaller caps which are potentially out-sized alpha generators,” Dusaniwsky said. “Using different factors in short-side stock selection can differentiate a portfolio from the herd and make a fund more attractive.”
