Thinking back to the global financial crisis, one of the most insightful accounts of the origins of the meltdown, and the various winners and losers, is Michael Lewis’s 2010 book ‘The Big Short’.
In the book – and the 2015 film, which we would recommend to anyone interested in financial markets – one of main characters is hedge fund manager Michael Burry, who successfully shorted US housing credit.
Short selling involves borrowing stock from an institution or a broker, for a fee, and selling in the hope of making a profit by buying back at a significantly lower price.
It’s important to stress this is NOT recommended for retail investors, because while the reward is limited (the share price can only go to zero) the risk is completely unlimited (the share price could go up 10 or 100 times).
Each day, hedge funds have to notify the FCA (Financial Conduct Authority), the UK financial markets regulator, which stocks they are short and by how much.
The table below, compiled by Castellain Capital, shows the Top 10 Most Shorted UK Stocks as of Tuesday 30 December. We have added the share price return year-to-date.
| Stock | Shares shorted | Number of funds | Return YTD |
| Greggs (GRG) | 9.9% | 11 | -40% |
| Ibstock (IBST) | 8.4% | 10 | -20% |
| Ashtead Technology (AT.) | 7.4% | 7 | -45% |
| Ocado (OCDO) | 7.4% | 10 | -21% |
| Wizz Air (WIZZ) | 7.3% | 6 | -11% |
| Domino’s Pizza (DOM) | 5.6% | 7 | -45% |
| Whitbread (WTB) | 5.3% | 6 | -14% |
| NCC (NCC) | 5.2% | 6 | -8% |
| J Sainsbury (SBRY) | 5.1% | 5 | +20% |
| Pennon Group (PNN) | 5.1% | 7 | -11% |
Source: Shorttracker.co.uk
The first thing which strikes us is how successful the strategy has been with 9 of the Top 10 stocks posting losses while the FTSE 100 index has gained 21% this year.
The second thing which strikes us is the concentration of negative bets on consumer-facing stocks, with all but Sainsbury’s paying off so far.
For anyone who owns any of the stocks above, it would be worth checking with the Shorttracker website every so often to see if there has been a change in the level of short selling.
An increase in either the level of shorts or the number of funds shorting the shares could be a negative indicator, while a decrease in the level of shorts or the number of funds positioned negatively could be a positive indicator.
Finally, when doing your own due diligence on companies as an investor, it often pays to know what professionals such as hedge funds think, as the results show.
Disclaimer: This content is for information only and is not investment advice. Always do your own research before investing. Click here to see full disclaimer.
