Hedge fund and asset managers are betting against many of the UK’s most recognisable brands, with the City starting to bet against the health of UK-focused companies in the aftermath of the vote to leave the European Union in June.
The referendum result brought about massive insecurity over the state of the UK economy. The Bank of England has already cut interest rates and launched a new quantitative easing programme to head off the coming economic storm, while economic surveys are pointing towards a substantial downturn in the country’s fortunes.
As a result, asset managers are making unprecedented bets against companies that carry out a large proportion of their business in the UK. Since the referendum, short positions have increased by 29% in British pub chain JD Wetherspoon — whose founder Tim Martin was a vocal Brexiteer — while shorts on Intu Properties, which owns shopping centres across the UK, have increased by 144% since the referendum, according to an article in The Times.
“What you can see very clearly is that businesses that have a domestic focus are being targeted for shorts. Some of the increases in short activity in property companies have been massive since the referendum,” Simon Colvin from Markit, which compiled the data cited by The Times.
Shorting a stock, at its most basic level, involves selling a stock that you do not own before buying it back at a later date. Short sellers bet on the value of shares falling, banking on making a profit from that price fall.
Given the huge increase in shorts on UK-focused companies since the referendum, Business Insider decided to take a look at the stocks that are currently most shorted by UK fund managers, using data compiled by Castellain Capital’s Short Interest Tracker.
The data shows that the UK’s fund managers have little faith in the UK’s retail sector, as four of the top ten shorted stocks are retailers, with two physical supermarkets, one online supermarket, and HMV, a former stalwart of the high street, which has suffered massively at the hands of Amazon and other online retailers.
- Carillion, facilities management and construction — 18.48%
- Ocado, online supermarket — 17.9%
- Morrisons, supermarket chain — 16.6%:
- Tullow Oil, oil and gas exploration — 12.09%:
- Weir Group, engineering — 9.92%:
- Mitie Group, outsourcing and facilities management — 9.86%:
- Sainsbury’s, supermarket chain — 9.81%:
- Melrose Industries, investments and acquisitions — 8.45%:
- HMV Group, high street music and entertainment retailer — 8.08%:
- Globo, enterprise mobility management — 7.03%:
Shorts in Ocado have actually decreased over the past week. Business Insider’s Jim Edwards — who owns Ocado stock — noted last week that the company’s shares popped around 20% in just a few trading sessions, despite being the most shorted in the UK. That position has changed and Ocado is now only second-most shorted.
Interestingly, despite the current tribulations of the industry, no fund managers in the UK have a short position against any of the country’s big four banks — RBS, Lloyds, HSBC, and Barclays. That is despite a big initial crash in the value of the banks after the referendum and continued worries about another banking crisis in the near future.