Short sellers crushed by November rally as bearish hedge funds lose USD1.5 billion on FTSE 100 bets

Financial data

Hedge funds betting against FTSE 100 companies suffered losses of almost USD1.5 billion last month, as bearish equity positions were struck down amid November’s strong stock market rally.

Short sellers lost money on 78 out of the 100 stocks that make up the UK’s blue-chip index during November, according to new data from Ortex Analytics, as global equity markets rallied on the back of the US presidential result and a series of positive breakthroughs on Covid-19 vaccines.

The hefty hit – which totalled GBP1.1 billion – torpedoed the GBP828 million gain made by short sellers in October.  Last month’s losses were more than double the GBP420 million slide suffered in August by bearish managers.

Negative positions in BHP Group proved to be the least profitable bet overall for hedge funds last month, bringing losses of some GBP249.4 million to those betting against the global mining firm.

Bearish bets in Royal Dutch Shell also went wrong in November, losing a total of GBP158.6 million, while a rally in Rolls-Royce Holdings’ left short sellers with a GBP157 million hole in their positions.

On the flipside, wagers against the National Grid plc brought in GBP115 million for managers last month, the biggest overall gain from short positions in the UK benchmark.

“These figures won’t come as a surprise to anybody who has been watching markets throughout November,” said Peter Hillerberg, co-founder of London-based equity research shop Ortex.

The US election result, coupled with the positive announcements on Covid-19 vaccines, sparked a surge in optimism and “sent markets into overdrive” last month, he explained, “crushing short positions.”

Looking ahead, he suggested a return to normal market conditions would be a positive, even for short sellers still nursing losses.

“The past eight months have been unprecedented and have required many traders to adapt their strategies or develop new ones altogether,” Hillerberg observed.

“With monthly losses like those we’ve seen in November, many will be looking forward to the moment they can dust down their tried and tested approaches and get back to something like normal trading.”