Cineworld tops the list of 10 most shorted stocks in the UK as hedge funds take aim at the cinema which has been forced to shut for over a year.
A “short” is a method of betting against a stock, so that the investor can make a profit if the share price falls.
Investors borrow stocks and then sell them at market price. If they have fallen in price before the investor is due to buy back the shares and return them, they will have made a profit.
Some 7.1 per cent of Cineworld’s stock was held short by six investment firms, with New Holland Capital taking the largest position with 2.42 per cent of the company’s shares, according to exclusive analysis for City A.M. by ETF provider GraniteShares.
Behind Cineworld comes Sainsbury’s, Tullow Oil and Hamerson where respective short positions were seven per cent, 6.9 per cent, and 6.7 per cent.
Will Rhind, founder and of GraniteShares, says the shorted stocks fall into two categories: those badly affected by the pandemic and companies where the share price has gone up too quickly.
There has been fertile ground for managers to short Cineworld given three lockdowns and the number of Britons going to watch films plummeting.
The big bets against sectors hit hard by the pandemic suggest investors are not counting on a rapid recovery despite positive sounds coming out of the City.
Across the pond a number of US short sellers are more wary of publicly disclosing their positions in companies susceptible to retail investors. It followed the Gamestop saga which saw retail investors pile into the company in a coordinated attack on hedge funds.
“The recent activity in Gamestop and other shorted names captures the current trend for democratization of finance with individual investors being able to pursue similar strategies as hedge funds and other professional investors,” Rhind said
But hedge funds will continue to be a strong force given the growing number of tech firms going public in what some have described as a frothy market.
In the UK, Rhind predicts hedge funds may start to move in on Deliveroo which has attracted flak for its valuation ahead of its IPO and whose share price continues to plunge.