The rotation out of ‘mega-tech’ and high-flying biotech stocks into cheap, unloved ‘value’ stocks seems to be gathering momentum not just in the US but also in the UK market.
On Tuesday shares in Royal Mail (RMG) leapt 25% after the firm raised its full year revenue guidance, albeit warning at the same time it would make a ‘material’ loss this year.
Today the shares are up another 6.9% for a gain on the week of more than 36%. And they are being kept company by equally unloved stocks such as movie theatre operator Cineworld (CINE) and property developer Hammerson (HMSO).
What all three firms have in common is they are among the 10 most-shorted stocks in the market, according to ETF provider GraniteShares.
| Top 10 Most Shorted UK Stocks | ||
| Measured by % of issued share capital on loan | ||
| Company | % of shares on loan | Performance ytd |
| Hammerson* | 14.0% | -92.3% |
| Metro Bank | 8.7% | -54.6% |
| Sainsbury's | 8.4% | -18.3% |
| Premier Oil | 8.2% | -80.8% |
| Pearson | 8.1% | -15.9% |
| Cineworld | 8.0% | -77.4% |
| Tullow Oil | 7.5% | -73.9% |
| Royal Mail | 7.5% | -2.6% |
| Petrofac | 6.1% | -62.6% |
| TUI | 5.8% | -62.6% |
| Source: GraniteShares, Sharepad, Shares | ||
| *not adjusted for capital increase | ||
Some of the names on the list have had well-documented issues. Hammerson, the most-shorted stock, was a victim of the collapse in commercial property markets even before the coronavirus and lockdown.
Metro Bank (MTRO) fell out of favour with investors after it mis-classified some of its assets, requiring it to put aside more risk capital, while publisher Pearson (PSON) has been struggling with the transition from paper-based learning to online tuition which has significantly reduced its margins.
Given the scale of the losses for most of these stocks short sellers will have generated substantial gains, but it looks as though the tide has already begun to turn.
According to Ortex Analytics, short positions on FTSE 100 companies may have cost short sellers as much as £420 million in losses in August.
Short positions in online grocery delivery firm Ocado (OCDO) alone generated losses of close to £80 million while combined losses on travel and leisure firms InterContinental Hotels (IHG) and International Consolidated Airlines (IAG) amounted to nearly £140 million.
