Top 10 most shorted UK stocks: Hedge funds bet against Metro Bank, Royal Mail and Cineworld
Metro Bank, Royal Mail and Cineworld are among the UK’s most shorted stocks, new analysis has revealed, as financial uncertainty amid the coronavirus crisis continues to weigh on industry heavy-weights.
How does short selling work?
Short sellers place bets on stocks that they expect to fall in price. Investors pay a fee to borrow shares in a company and then sell them with the aim of buying them back and then returning them to the lender.
Short sellers are betting that the stock they sell will drop in price, meaning they can quickly rebuy them and return them to the lender and pocket the profit.
Companies in precarious situations, or companies suspected of having a bloated valuation, tend to be shorted more than others. Short sellers often bet against high-quality stocks that they believe have risen too far, too fast, and underperforming stocks that they believe may have critical underlying problems.
US-listed Tesla is currently the most short stock in the world, with short interest against the company setting a record $20bn earlier this month. Short sellers claim to see a disconnect between Tesla’s sky-rocketing market performance and its underlying business performance.
What about the UK?
The number of net short positions reported to the Financial Conduct Authority (FCA) in the first five months of this year hiked around 25 per cent compared to the same period last year, as investors sought to cash in on market volatility brought about by the pandemic.
Property development firm Hammerson is currently the most shorted UK-listed stock, according to new research by exchange-traded fund provider Granite Shares, after shares in the firm have fallen more than 76 per cent in the year to date.
Hammerson, which owns some of Britain’s biggest shopping centres including London’s Brent Cross, currently has 13.9 per cent of its stock shorted by nine separate investment firms.
It comes as the retail giant has been hard hit by the pandemic, with thousands of retail spaces and department stores unable to pay rent amid ongoing financial uncertainty.
Earlier this month Hammerson said it had received only 16 per cent of the rents it is owed in the UK so far this quarter, and had drawn down a further £300m from its existing credit facilities.
The collapse of rival Intu into administration in June spooked Hammerson investors, sending shares in the property development titan down 10 per cent this month.
Top 10 Most Shorted UK Stocks
| Company | Percentage of stock held short | Number of funds shorting the stock |
| Hammerson | 13.1% | 9 |
| Metro Bank | 9.6% | 4 |
| Royal Mail | 9.4% | 8 |
| Premier Oil | 8.7% | 3 |
| Tullow Oil | 8.4% | 6 |
| Cineworld | 7.5% | 8 |
| Carillion | 7.2% | 6 |
| Pearson | 6.6% | 6 |
| Domino’s | 5.5% | 7 |
| Petrofac | 5.4% | 5 |
Metro Bank was the next most-shorted UK company in July, with 9.5 per cent of the company’s stock currently shorted by four different funds.
The British challenger bank has had a tough time during the pandemic, with shares down 45 per cent in the year to date.
Metro Bank entered into an exclusivity deal with peer-to-peer lender Rate Setter in June, in a deal that sparked hopes of a major turning point for the beleaguered bank.
However, investors remain unsettled after the bank’s lender opted not to disclose its capital reserves in its first quarter trading update in May, igniting fears that Metro Bank is poorly positioned to weather further fallout from the coronavirus crisis.
The bank was forced to slash its growth plans earlier this year after plunging to a £131m pre-tax loss in 2019, after a devastating year involving an accounting scandal and the exodus of the bank’s top brass.
Royal Mail came in close third in the list of the most-shorted UK stocks in July, with 9.4 per cent of the firm’s stock shorted against it by eight different funds.
The postal specialist has been hugely affected by business closures and the acceleration of the switch to digital amid the pandemic, with 788m fewer letters sent during lockdown, marking a 33 per cent fall.
Royal Mail last month said it was cutting 2,000 management jobs in an attempt to shore up more than £130m from cost-cuts over the next year.
Growth in the firm’s parcel business failed to offset the collapse in letter volumes which has been exacerbated by the pandemic, with profit before tax plunging 25 per cent to £180m in the financial year to the end of March.
Oil companies Tullow Oil and Premier Oil were the fourth and fifth most shorted UK-listed stocks respectively in July.
Oil firms have had a difficult journey in 2020, being forced to navigate a price war between Saudi Arabia and Russia earlier this year whose effect lingers on prices, with worldwide standard Brent crude currently trading at a little over $43 per barrel.
Earlier this month Premier Oil was forced to reduce its production guidance from 70,000-75,000 barrels per day to 65,000-75,000 barrels per day after difficulties at one of its flagship fields.
Meanwhile Tullow Oil has seen its share price fall almost 100 per cent over the year-to-date, dropping from 59.7p per share in January to its current 29.9p share price.
In February the London-listed firm was forced to abandon one of its wells in Peru after failing to find oil. Tullow’s poor performance last year led to the resignation of chief executive Pat McDade, who quit along with exploration director Angus McCoss in December.
Global cinema giant Cineworld has also had a rough ride during the pandemic, with shares falling more than 400 per cent in the year-to-date.
Investors continue to swoop on the world’s second-largest cinema operator, with 7.5 per cent of its stock currently shorted against it.
Cineworld has had to grapple with high debt and the closure of its 9,518 cinema screens during global lockdowns amid the pandemic.
Last month, the group pulled out of buying Canadian cinema chain Cineplex, in a $2.1bn takeover deal struck before the coronavirus crisis.
Earlier this month Cineplex said that it would pursue around $1.1bn in damages from Cineworld, claiming the British firm had been hit with “buyer’s remorse”.
But Cineworld hit back at claims that it breached its obligations to complete the Cineplex takeover, stating that it would countersue the Canadian firm in an attempt to “vigorously defend” its business practices.
What Granite Shares said
Will Rhind, founder and chief executive of Granite Shares, said: “This year’s huge market volatility — fuelled by tensions in the Gulf, the global coronavirus pandemic and the related economic fallout — has led to opportunities to take short positions.
“In this environment, companies facing difficulties, like Hammerson and Metro Bank, have seen their share price under particular pressure.”
Rhind added: “With the markets as they are today, many professional and sophisticated investors see the ability to use leverage to either go long or short on individual stocks as invaluable… Looking ahead, various factors, whether it be US-China relations, the looming US presidential election or UK-EU negotiations, suggest that markets might continue to see heightened levels of volatility over the coming months.”
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