The top 10 most shorted stocks in the UK

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We hear a lot about shorted stocks these days. To short a stock means borrowing it from someone else and selling it at the current market price. If the price declines, the short-seller can buy it back, return it to its original owner and pocket the difference.

However, if a stock price rises, short-sellers can suffer losses. Stocks that are shorted are expected to see a fall in price. If I see short-sellers building big positions against stocks I own or think of owning, I assume they have good reasons for doing so. This should prompt me to research and see if I’m missing something about the stock and perhaps avoid an investing disaster.

Luckily it’s pretty easy to track which stocks attract the most attention from short-sellers. The Financial Conduct Authority publishes a daily update of the stocks that institutions are selling-short. So, let’s look at the top 10 most shorted UK stocks from the end of last week.

Cineworld remains in the top 10 most shorted stocks

Kingfisher was the most shorted share in the UK last week and the week before. Six Institutions have positions against the home improvement specialist whose brands include the likes of B&Q, Screwfix and TradePoint, and the reported net short position is equivalent to 7.82% of the issued share capital of Kingfisher.

Of course, Cineworld makes the top 10. Six institutions were still short Cineworld to the tune of 7.54% of its issued share capital on Friday of last week. That was after the announcement of capital restructuring on Wednesday, news of it preparing for a US bankruptcy filing on Friday and an 80% drop in the Cineworld share price.

10 most shorted stocks in the UK at the end of last week

Stock Name Ticker FTSE Supersector Net Short Position (%) Number of Position Holders
Kingfisher KGF Retail 7.82 6
Cineworld CINE Travel and Leisure 7.54 6
boohoo BOO Retail 7.35 9
ASOS ASC Retail 5.79 6
Naked Wines WINE Retail 5.73 5
Currys CURY Retail 5.01 5
Hargreaves Lansdown HL. Financial Services 4.76 7
Hammerson HMSO Real Estate 4.73 4
Fevertree Drinks FEVR Food, Beverage and Tobacco 4.59 1
Ashmore ASHM Financial Services 4.37 4
Source: Financial Conduct Authority Short Position Daily Update Reports

It’s interesting to note that half of the top 10 most shorted stocks are in the retail FTSE supersector. Then we have two from financial services and one each from real estate, travel and leisure, and food, beverages and tobacco. That makes sense given the UK’s difficulties with inflation and a burgeoning cost of living crisis.

Which UK stocks are growing short-selling interest?

Aside from the top 10 stocks with the largest net short positions against them, it’s also worth looking at those stocks that saw the biggest increases in their net short position. Hargreaves Lansdown stock is interesting enough for me to follow up on. The net short position against it increased by 0.53% over one week and moved it into the top 10. There’s also further evidence of pessimism around the retail sector, with boohoo and Tesco seeing significant increases in short positions.

Top 5 UK stocks attracting short sellers last week

Stock Name Ticker FTSE Supersector Absolute Increase in Net Short Position (%) Change in number of position holders
boohoo BOO Retail 0.65 +1
Rentokil Initial RTO Industrial Goods and Services 0.61 +1
Hargreaves Lansdown HL. Financial Services 0.53 +1
DS Smith SMDS Industrial Goods and Services 0.51 +1
Tesco TSCO Retail 0.5 +1
Source: Financial Conduct Authority Short Position Daily Update Reports

Rentokil and DS Smith are both industrial goods and services companies, and both saw a significant increase in the reported net short position against them. That’s worth me keeping an eye on, as it suggests that the short-sellers are becoming more convinced that a slowdown in consumer spending (see their bets against retail companies) will spill over into a more general recession in the UK.

And finally, neither I nor The Motley Fool UK encourage short-selling. Shorting stocks as a strategy is risky and probably best left to institutional investors. However, keeping an eye on stocks that big institutions are shorting can guide my research and help me avoid pitfalls.

The post The top 10 most shorted stocks in the UK appeared first on The Motley Fool UK.

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James J. McCombie owns shares in Kingfisher. The Motley Fool UK has recommended ASOS, DS Smith, Fevertree Drinks, Hargreaves Lansdown, Tesco, and boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.