The launch of a new ETF by First Trust, based on NASDAQ’s QFON Index (NASDAQ:FONE), which tracks the companies driving the Smartphone revolution, has prompted us to revisit this sector to see how investors are positioning themselves in: China Unicom (HKG:0762), Nokia Adr (NASDAQ:NOK), Nokia Oyj (HEL:NOK1V), Arm Holdings Adr (NASDAQ:ARMHY), Arm Holdings (LON:ARM) and Skyworks Solutions (NASDAQ:SWKS).
The QFON index began in April last year and we have already seen some interest in the securities lending and borrowing markets in this new ETF, and we expect to see far more given the interest in this area. Given that investors will continue to try and pick the winners (and occasionally the losers) in this hot area, we ran a screen across the 74 companies in NASDAQ’s Smartphone Index to identify which stocks are exposed to positive and negative investor flow sentiment. Some may find it easier to simply go long this ETF. At the very least, it will be a useful hedging tool in time.
For China Unicom, despite its competitive advantage gained by being sole iPhone supplier in China and being in talks with Apple to begin selling the iPad by the end of the year, investors are bearish towards the stock. Short interest currently stands at a low of 1.9% of total shares outstanding after having increased by 8% over the past month. However, this does represent 25% of the lendable supply being borrowed. The lendable supply, which can also be used as a proxy for institutional ownership has decreased at a lesser rate of 4% over the past month.
In earlier reports, we suggest that investors distanced from the host country of a stock have a tendency to be less forgiving than those, for example, in the region of the stock’s main listing. Historically, Nokia has been a good example of this, but even the investors in the Nordic listing have reacted negatively to the 30% share price fall since early February. Following the fall, short interest has more than doubled to 4.5% of total shares outstanding on loan. The Nokia ADR is also subject to high negative investor sentiment as demand to borrow has increased by almost 50% over the past month. Although short interest is lower than the main listing at 2.5% shares outstanding on loan, this does account for half of the lendable supply. Would investors who are long or short Nokia use this Smartphone ETF (NASDAQ:FONE) to hedge their positions?
Arm Holdings and Skyworks Solutions are, on valuation grounds, the most expensive global semiconductor companies. However, Arm Holdings takes the lead position as it trades at 87.7 times profit, more that twice as high as Skyworks Solutions. Some say (Bloomberg) it is now the most expensive takeover target in the semiconductor industry. But, in our sentiment screen of the QFON constituents, Arm Holdings ADR features in our top 6 positive sentiment stocks. Although, the stock has seen little increase in institutional ownership, the demand to borrow has fallen by almost 40% over the past month, with short interest currently standing at 3% of total shares outstanding on loan. The short interest in the UK listing of Arm Holdings currently stands at a low of 1.45 of total shares outstanding on loan. It may be an expensive name to own but no one seems to care!
Skyworks Solutions has seen its share price rally over the past three quarters. After reaching a new annual high of 37.82 USD last month, there has been a slight depression in the share price. Do investors see this as a market correction or an end to its rally? The Massachusetts based company appears in our top five stocks seeing negative investor sentiment from both the long and short sides of the market over the past month. Demand to borrow has increased by 11% raising short interest to 7.5% of total shares outstanding on loan. Large funds who lend, who are less bearish towards this stock, have also been selling off their inventory over the month, decreasing institutional ownership by 4%.
