- Hedge funds have short positions in certain of the retail outlet winners from lockdown
- The bet is that the behaviour change is not permanent, that current results are short term
- This may or may not work – how much of the obvious change in retail behaviour is permanent?
London hedge funds are making short bets against a number of retail names. In some ways this is the reverse of the trade from the beginning of the pandemic. Clearly and obviously, if we’re all in lockdown and physical stores are closed then bricks and mortar retail is going to suffer. So too are retail commercial landlords – as we’ve mentioned before about Land Securities (LON: LAND). So too we’ve seen Boohoo (LON: BOO) have excellent success in part of the lockdown, not so much since.
Which is where the question really is. How much of the lockdown-induced change is going to unravel as a result of the end of lockdown? That has obvious implications for both sides of the retail sector. Some of those online gainers could see results slip back again. Some of those bombed-out bricks and mortar folks could see comebacks.
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There’s no doubt that there’s a secular change going on. Online shopping has been, as the Office for National Statistics reports, growing by one and two percentage points of total retail sales for some years now. But lockdown jumped that by 10% and more. A decade’s worth of increase in that one lockdown year. We’d all expect some of this to fall off of course. However weird it may sound some people just do like to physically go shopping. But how much? And who will benefit and who will lose from this?
How the hedge funds are betting doesn’t prove this one way or the other. It just tells us who they think will be those losers – their short positions do that is. Short positions in AO World (LON: AO) are up to 6% of total share issuance for example. This is presumably the assumption that the online boom will fade away as normality returns. 3.4% of Boohoo (LON: BOO) is out on loan to shorts but that could be because of a bet on that fade or it could be the company’s known problems with supply chains and American logistics.
Just the one fund, Marshall Wace, seems to have a short of 1.42% on ASOS (LON: ASC) but again, is that known problems in the US or a more general bet on the unwind?
A reasonable evaluation is that yes, the lockdown produced some remarkable changes in retail behaviour. We can see winners and losers from that in results already announced simply because the effect is in time periods already accounted for. The question now is how much of those changes will stick? Again, being reasonable, we might well think that some part of the change was happening anyway, without lockdown, so that will continue. Also that the extremes will fade back.
The big question about trading positions is who, exactly, is going to be a long term winner from all this and who merely enjoyed a blip, a surge that then fades? Equally, who got shafted but will recover?