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Hedge funds see “little to no profit” from betting against UK supermarkets, as short trades go awry during lockdown

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Hedge funds that built major short positions against UK supermarkets at the start of the coronavirus lockdown have seen their bets go awry as share prices in the sector remained resilient.

Several high-profile hedge fund managers made sizable wagers against the likes of Sainsbury’s and Morrisons earlier in the year, with marquee names such as Pelham Capital, BlackRock and Citadel Europe among those making the biggest bets.

But new analysis by Ortex Analytics, the London-based equity analytics firm, shows that as supermarkets’ share prices have held up throughout the pandemic, many managers have been forced to close their positions without taking any profits.

Peter Hillerberg, co-founder of Ortex, said the research is a reminder that short-sellers – who were sharply criticised during coronavirus-driven market turbulence early this year – “sometimes get it wrong.”

Examining data from between March and July, Ortex identified a steep rise in short positions taken in Sainsbury’s and Morrisons who, along with Tesco and Asda, make up the UK’s ‘Big Four’ supermarkets.

As the Covid-19 pandemic worsened, sending the UK into lockdown in mid-March, UK supermarkets were initially gripped by a rush of panic buying, which later gave way to lengthy queues as stores introduced social distancing measures to help curb the spread of the virus.

As retailers grappled with maintaining adequate stock, short positions in Sainsbury’s and Morrisons soared from mid-March onwards, peaking in early May, Ortex said.

“As UK supermarkets dealt with a wave of panic buying in the early stages of the pandemic, short-sellers were also building up their positions in UK food retailers in anticipation of a shock to their share prices,” Hillerberg observed.

“However, this trade doesn’t appear to have paid off; a matter of weeks later, many exited their positions having taken “little to no profit” as share prices remained stable.”

He added: “Only weeks after they were lauded for their bets on Wirecard, this shows that short-sellers are fallible and sometimes get it wrong.”

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