Short-sellers are stepping up their attack on ASX shares over the past month even as the S&P/ASX 200 Index (Index:^AXJO) recovers from the coronavirus fallout.

The total number of shares short-sold jumped by 3% over the past month and is close to 4% more than at the start of this calendar year.

It’s usually a good idea to keep an eye on what these bearish traders are doing as they tend to be more sophisticated than the average investor.

Short-sellers are those who borrow a stock to sell on-market with the aim of buying it back at a lower price later to profit from the difference.

Shorting the BNPL sector

One of the interesting things short-sellers appear to be betting against are the rivals to Afterpay Ltd (ASX: APT) even as they stepped back from shorting the buy now pay later (BNPL) industry leader.

Those who shorted Afterpay are probably nursing big losses as the stock hit a record high on Monday.

This might have convinced them to go after its weaker rivals instead as the sector, which is linked to discretionary spending, is under a cloud. The ones most likely to use such services are more likely to be impacted by job losses.

Targeting the weaker players

Based on the latest ASIC short-selling data that runs to May 5 (the data is always a week old), short-interest in Zip Co Ltd (ASX: Z1P) and FlexiGroup Limited (ASX: FXL) jumped.

Zip Co’s short-interest, which is the percentage of Zip shares in the hands of short-sellers, rose 165 basis points (1.65 percentage points) to 8.9%.

Flexigroup isn’t far behind. The proportion of its shares being shorted increased 136 basis points to 1.9%.

It looks like Zip Co is the more popular short target with close to 10% of its shares being shorted. That’s a relatively high percentage.

Biggest increase in shorts

However, these shares aren’t the flavour of the month as short-sellers have been more aggressively increasing their bearish bets against other ASX stocks.

Top of the list is gold miner KIRKLAND/IDR UNRESTR (ASX: KLA) with short-interest in the stock surging 758 basis points over the month from nothing. Short-sellers may be using it as a hedge against the rallying gold price.

Retailers are a moving target

Second on the list is embattled department store group Myer Holdings Ltd (ASX: MYR). Short-interest in the stock jumped 437 basis points to just over 14%.

I suspect the sudden and sharp rally in Myer shares on Monday may be due to short-covering where short-sellers rush to buy back the stock to close their position.

The reopening of Myer stores and the easing of social restrictions is triggering a re-rating in ASX retail stocks.

Holding a large short position in Myer must be causing pain with the stock surging 44% over the past month.

The short trade in the sector could become a widow maker if short-sellers don’t go after the right candidates.

More reading

• 3 top-notch ASX shares on my May watchlist
• Is this ASX healthcare share about to soar?
• Where to invest $10,000 in ASX 200 shares immediately
• Leading brokers name 3 ASX shares to sell today
• ASX 200 sinks 1.3%: Big four banks drag ASX lower & Altium issues sales warning

Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended FlexiGroup Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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How many ASX shares should you have in your portfolio?

It’s a tricky question, to be sure! That’s partly because everyone has a different answer. Some people are happy with 4, others have more than 40.

Some experts will tell you to have as many as you can for diversification’s sake, others like Warren Buffett will tell you that “diversification is protection against ignorance. It makes little sense if you know what you are doing.”

So what is one to do?

What does diversification bring to a portfolio?

Diversification is a term bandied around a little much these days, in my opinion. But the basic idea is that diversification helps you reduce risk. The more companies, industries, and even countries you are invested across, the less likely a significant event in any one of these will derail your returns.

Take the recent shocks we’ve seen in the oil markets as an example. If someone just had Woodside Petroleum Limited (ASX: WPL), Beach Energy Ltd (ASX: BPT) and Caltex Australia Limited (ASX: CTX) in their portfolio, they would have been smashed by the descent of oil prices into negative territory. Having shares outside the oil sector would have helped insulate this portfolio considerably.

Of course, if you diversify too much, you will just end up with a return similar to what a broad market index fund will give you.

How many shares are enough?

Keeping all this in mind, having a share portfolio of 15 shares would be ideal (in my opinion), but anywhere between 10-20 is probably the right balance for most investors.

But just having 15 isn’t enough. If you had 15 oil companies or 15 banks, it wouldn’t be a diversified portfolio at all.

So a further caveat: having 15 companies could be considered ideal, but so is making sure this stable covers a broad swathe of at least the Australian economy is also important.

And if you still feel your portfolio is still too concentrated, you can easily bump up your diversification with an exchange-traded fund (ETF) or two.

But don’t let an arbitrary share limit dictate how you choose to invest if you don’t wish. There’s nothing wrong with owning one company just like Warren Buffett (provided you know it inside out). Equally, there’s nothing wrong with owning 40 if it helps you sleep better at night. Investing is a personal journey and one that you have to do your own way!

More reading

• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 Weekly Wrap: New ASX bull run continues
• 5 things to watch on the ASX 200 on Monday
• What to watch on the ASX 200 next week
• 5 things to watch on the ASX 200 on Friday

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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May has proved an interesting month so far on the S&P/ASX 200 Index (ASX: XJO). After the lows we saw in March, May has (thus far) continued the positive momentum we saw throughout April – with a few hiccups along the way (today being one of them).

So here are the 3 ASX shares that I’ve got on my May watchlist. I’m hoping for a great price to buy them this month, but we’ll have to wait and see if that eventuates!

BetaShares Nasdaq 100 ETF (ASX: NDQ)

This exchange-traded fund (ETF) from BetaShares tracks the 200 largest companies in the US Nasdaq exchange, which is known for its ‘tech-heavy’ composition. Its largest holdings are names like Microsoft, Amazon.com, Apple and Alphabet (Google), so you know you are getting quality here.

NDQ has rebounded strongly since the lows we saw in March, so I’m waiting for a dip for this one. Nonetheless, it’s a fund I would love to see in my portfolio this May. Most of the companies that are shaping and changing the world can be found within this ETF and so I think it’s a great long-term growth investment.

Afterpay Ltd (ASX: APT)

I’m still kicking myself that I missed out on loading up on Afterpay shares when the buy now, pay later pioneer was (ever so briefly) under $9 a share in March. Today, it stands at over $41 after we heard last week that Chinese giant, Tencent Holdings has acquired a 5% stake in Afterpay.

I’m not finding the current price too exciting, but I would love to buy into Afterpay if the price dips back down to anywhere near the levels we saw in March. I think this company is one of the most exciting growth stories on the ASX and I’m hoping to get a slice of it this May.

MFF Capital Investments Ltd (ASX: MFF)

MFF is a listed investment company (LIC) that focuses on the top companies in the US. I love that its top holdings are the payment giants Mastercard and Visa, 2 companies that are growing at breakneck speed. Other holdings include Wells Fargo and Microsoft. As such, I think this company is a great share to use for portfolio diversification and long-term capital growth.

I already have some MFF shares but would love to pick up some more if the price dips back down this month. March saw lows around $2.20 – a level I would love to see again for a buying opportunity in May.

More reading

• Short sellers are going after Afterpay’s rivals and these ASX shares
• Is this ASX healthcare share about to soar?
• Where to invest $10,000 in ASX 200 shares immediately
• Leading brokers name 3 ASX shares to sell today
• ASX 200 sinks 1.3%: Big four banks drag ASX lower & Altium issues sales warning

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares), Magellan Flagship Fund Ltd, Mastercard, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Mastercard, and Visa. The Motley Fool Australia owns shares of and has recommended BETANASDAQ ETF UNITS. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Alphabet (A shares) and Mastercard. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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