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Hedge funds net USD1 billion from short selling FTSE 100 stocks, as Covid and Brexit propel volatility

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Hedge funds made more than USD1 billion from short positions in FTSE 100 companies during October’s stock market volatility, as managers capitalised on renewed uncertainty over the coronavirus pandemic and heightened fears of a no-deal Brexit.

Short sellers generated GBP828 million (USD1.067 billion) from FTSE 100 bets last month, and made profits on 75 out of the 100 companies that comprise the UK’s blue-chip index, according to new data from London-based equities analytics and research provider Ortex Analytics.

In September, hedge funds made GBP543 million betting against the London benchmark.

In what proved to be a “bumper” month for bearish managers, bets against Rolls Royce were the most profitable short for the second consecutive month – netting hedge funds GBP238 million in October, after September’s GBP244 million win.

Managers took GBP152.6 million from bets against BHP Group, and also made money from shorts in Ocado Group (GBP81.9 million), Hargreaves Lansdown (GBP50.7 million), and AstraZeneca (GBP36 million).

On the downside, hedge funds lost almost GBP27.5 million betting against HSBC.

They also suffered losses on Royal Dutch Shell (-GBP23.1 million) and International Consolidated Airline Groups (-GBP10.2 million) – two previously-profitable short positions – as well as in J Sainsbury (-GBP16.3 million).

Ortex Analytics co-founder Peter Hillerberg said the continuing uncertainty surrounding the pandemic combined with the growing likelihood of a no deal Brexit contributed to an increase in profits from short positions against the FTSE 100 index.

“October has been a bumper month for short sellers as volatility once again spiked following a relatively stable Q3,” said Hillerberg.

He noted how International Consolidated Airlines Group and Royal Dutch Shell moved from being among the top five profitable positions in September to the top five least profitable positions in October.

“Rolls Royce and BHP, however, remain fixed at the top of the table, giving an indication of some of the long-term convictions being expressed by the trading community.”

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