Short selling in UK companies surges by 25 per cent year-on-year, as high-profile hedge funds pile in

Finance

The amount of short bets against UK stocks during the first five months of 2020 has surged 25 per cent compared to the same period last year, with the increase triggered by huge surges in market volatility, according to industry analysis by GraniteShares.

Between 2 January and 25 May, there were 1,569 net short positions of at least 1 per cent reported to the Financial Conduct Authority, 305 of 2 per cent or more, and 70 of 3 per cent or greater. 

By comparison, during the same period in 2019, there were 1,255 net short bets of at least 1 per cent; 291 of 2 per cent or more, and 93 of 3 per cent upwards, according to an analysis of industry data by the ETF provider.

GraniteShares said tensions in the Gulf region earlier at the start of the year, followed by the Covid-19 pandemic and resulting economic turbulence, has fuelled spikes in volatility, leading to greater shorting opportunities.

Odey Asset Management, the London-based contrarian hedge fund led by high-profile veteran Crispin Odey, was a major short-seller during the period, disclosing a 3.64 per cent bet against Intu Properties, and 3.57 per cent short in Metro Bank Plc.

Other big bearish bets disclosed to the FCA by high-profile hedge funds included Millennium International Management’s 3.08 per cent short position in Flutter Entertainment, AQR Capital Management’s 2.8 per cent bets against EasyJet and Capital Plc, and BlackRock’s 2.08 per cent short against Carnival Plc.

Elsewhere, Marshall Wace disclosed a 1.91 per cent short in Croda International, as Citadel posted a 1.38 per cent bet against Burberry.

GraniteShares said market volatility, coupled with an increased number of opportunities to short individual stocks, has meant capital has been spread across a greater number of positions, accounting for a lower number of reported short bets above 3 per cent.

“We have seen a significant increase in stock market volatility this year, first as a result of tensions in the Gulf, then due to the global Coronavirus pandemic and the related economic fallout,” said Will Rhind, GraniteShares’ founder and CEO.

“Investors will have acted for different motives, in some cases to hedge risk and in others to profit from falling prices.”

Short-selling – a core part of most typical hedge fund strategies - came under fire earlier this year after stock markets plummeted amid the coronavirus outbreak.

In March, the Financial Conduct Authority temporarily halted the short-selling of certain Italian stocks in a move to calm markets, following similar measures by the Italian financial watchdog the Commissione Nazionale per le Società e la Borsa (CONSOB) and Spain’s Comisión Nacional del Mercado de Valores (CNMV), in light of big market falls in Milan and Madrid.

Earlier that month Bank of England governor Andrew Bailey said shorting “might not” be in the interest of the economy, and cautioned short-sellers to “just stop and think what you’re doing.”

Commenting on the numbers, Rhind said: “With the markets as they are today, many professional and sophisticated investors see the ability to use leverage to either go either long or short individual stocks as invaluable. It enables them to back their conviction views as well as hedge perceived risks.  Looking ahead, various factors, whether it be US-China relations, the looming US presidential election or UK-EU negotiations, suggest that markets might continue to see heightened levels volatility over the coming months.”