Retail shares hammered by short sellers

LEADING hedge funds are making enormous bets against the health of the UK high street, according to figures supplied to City A.M. by data provider Markit.

Home Retail Group, the parent company of Argos and Homebase, has more than one in five of its shares out on loan ahead of Thursday’s interim management statement.

Short sellers borrow shares from a broker in the hope that a company’s stock price will fall. If the price does indeed fall, then the traders can buy back the shares at a lower price and profit from the difference.

Other retailers affected by the tactic include newsagent WH Smith, which this week surged into second place on the most-shorted list with 15 per cent of its shares currently out on loan.

Electronics retailer Dixons has also been hit after hedge fund Fest NV took a substantial short position on the stock, leaving one in 10 shares out on loan.

Online supermarket Ocado is a long-term target of short sellers, with almost 14 per cent of its stock currently being used in this manner. Essex-based flooring company Carpetright is also in the top ten most shorted shares.

Recent rule changes force investors to declare substantial short positions to the Financial Services Authority. Yesterday’s publication of the FSA list reveals the hedge funds betting against the future success of Home Retail Group include BlackRock, Maverick Capital and Lone Pine.

Mid-ranking high street chains have struggled in recent weeks. Last month electronics specialist Comet closed all of its 236 stores, while camera chain Jessops collapsed last Friday with the loss of 1,370 jobs.

As a result hedge funds have taken an active interest in other high street companies that they think could face difficulties.

Scottish engineering company Weir Group retains the unwanted title of most shorted stock in the FTSE 100.