Hedge fund short sellers claw back FTSE 100 losses as fresh Covid uncertainty sees bearish bets rebound

Bulls v Bears

Hedge fund short sellers have rebounded with a GBP418 million (USD542.6 million) gain from negative bets against FTSE 100-listed companies – just a month after losing almost the same amount from wayward shorts in UK blue-chip stocks.

Overall, short sellers made gains from more than half of all FTSE 100-listed companies (53 out of 100), according to new data from Ortex Analytics, with Rolls Royce proving to be the most profitable wager, bringing in GBP187.7 million for bearish managers.

September’s bounce-back marks a reversal of fortunes for hedge funds betting against FTSE 100 companies, an index often seen as a bellwether for investor confidence.

In August, managers suffered a GBP420 million hit after UK equity market gains sent many sizable short bets southwards.

Peter Hillerberg, co-founder of London-based equity research firm Ortex, noted that four of the five most profitable shorts in September had earlier been significant loss-makers in August, underlining how renewed uncertainty over the Covid-19 pandemic has underpinned the rebound.

“Last month we saw a number of big trades turn sour for short-sellers which impacted overall profitability in August,” Hillerberg observed. “At the time, we predicted that the pendulum may swing back the other way in September and that’s exactly what we’ve seen as short sellers continue to profit from the uncertainty surrounding the pandemic.”

Among the big bets to pay off were International Consolidated Airlines Group, owner of British Airways, Aer Lingus and Iberian. Hedge funds made GBP168.8 million here, as the coronavirus fall-out continues to put pressure on the airline industry. 

Wagers against BHP Group, the Anglo-Australian mining, metal and petroleum firm, yielded GBP125.1 million of profits, while Royal Dutch Shell (GBP115 million) and supermarket chain Wm Morrison (GBP24.7 million) were also among the most profitable shorts.

“What has been fascinating to note is the extent of the swing for some companies,” Hillerberg added.  “Four of the top five most profitable trades this month were significant loss-making trades in August, highlighting the speed at which fortunes can change during this volatile period.”

It wasn’t entirely one-way traffic in September, however. Bets against British American Tobacco went up in smoke to the tune of GBP49 million, while negative positions in Ocado Group heralded some GBP48 million worth of losses. Just Eat (-GBP27.8 million) and Unilever (-GBP23.6 million) were two other key shorts that turned sour for hedge funds last month.