Shorted Stocks in the UK – Which Names Make The Most ‘Unwanted’ List

Short-selling is a controversial topic but one that investors need to know about. The practice involves selling shares in a company that you don’t already own, in the expectation that at some later date, the price will have fallen so you can buy them back, close the trade, and post a profit.

For some, betting against real-world businesses that employ thousands of people suggests the financial markets are overstepping the mark. The counter-argument is that without checks and measures, a bad company’s share price can overshoot.

The UK stock market, amidst all its rallying and mergers and acquisitions buzz, also features a parallel narrative of companies facing significant bearish bets. Short sellers have actively targeted various British companies, anticipating that their stock prices will plummet, and thus, making the “most shorted stocks” list an interesting angle for investors and market watchers alike.

At the forefront is Petrofac (PFC), the energy services provider, which holds the unwanted title of being the most shorted stock in Britain. With more than 10% of its shares currently shorted, Petrofac is undergoing rescue discussions with its creditors following a staggering share value drop of more than 99% during the year.

Trailing not too far is the tech-savvy Ocado Group (OCDO), which finds itself on shaky ground. Nearly 7% of Ocado's shares are being shorted as the company faces potential ejection from the FTSE 100 index. The online grocery firm had initially flourished early in the pandemic but now wrestles to sustain that growth as normal buying patterns resume, leading to its shares' decline.

Given the current macroeconomic environment, it comes as little surprise that the shorts in Ocado have been building recently. It is one of the more expensive supermarkets, and lockdown restrictions haven’t been in place for some time now, meaning many customers have moved back to in-store grocery shopping.  

This level of short interest does pale when compared to June 2016, when firms were short over 21% of Ocado shares. Given the company’s latest disappointing results and demand for its services continuing to slide, the shorts may continue to build in the near term. 

Investment management firm Abrdn (ABDN) also joins the ranks of these struggling entities. Amidst leadership changes, with the chief executive stepping down after a four-year tenure, Abrdn has watched its share prices decrease by 13% throughout the year and an alarming 27% over the last twelve months.

In a contrasting storyline, Royal Mail, now under its new identity International Distributions Services Plc, has experienced a considerable rise in stock prices, almost 70%, following its acquisition by Czech billionaire Daniel Křetínský. This event ended a long period of tumultuous public ownership and marked a new beginning for the company.

The list of UK companies under short-selling scrutiny extends to include names such as St James's Place, National Grid (NG.L), fashion retailers Asos and Boohoo, luxury brand Burberry, and telecommunications stalwart BT. Short selling, the strategy of selling borrowed shares in anticipation of profiting from a price decline, is not only a reflective gauge of company distress but also a trigger for further market activities. As short sellers cluster around a stock, it often spells more significant trouble for the company involved.

Boohoo is the second online fashion retailer that makes it onto the top ten most shorted UK stocks list, and like Asos, it has been one of the most shorted UK stocks for several months in the last year or so. This has resulted in its share price tumbling. It now trades under 35p per share after hitting a high of well over 400p per share during the pandemic. So again, Boohoo is another online-focused retailer that has been significantly impacted by the shift back to in-store shopping, although it has had its own troubles over the past few years as well. 

Short selling remains a potent market force that can herald potential downturns for firms. As these most shorted stocks come under investors' radar, the financial fate of many such companies hangs in the balance, influenced by the cold calculus of bearish market sentiment.

Such market dynamics ensure that investment strategies and corporate performance continue to be monitored closely, with short sellers playing a critical role in the financial ecosystem.

The Basics of Short-Selling

How it works

At face value, short-selling looks very much like taking a long position. In some ways, it is, but there are subtle differences you need to be aware of, not least because they could blow your account out of the water.

The easy part is that if you short 10 shares in stock ABC at a price of $20, and price falls to $18, your total profit = 10 x 2 = $20.

• Short squeeze — If the price in ABC goes against you, it can technically carry on rising an infinite amount. If it reaches $100, your total loss = 80 x 10 = $800. This loss being four times larger than the size of the trade you initially put on, which was 10 x 20 = $200.
• The much-publicised ‘short-squeeze’ in GameStop left several hedge funds nursing losses of billions of dollars.
• There are additional costs involved in short selling. These accrue daily, so if the sell-off you anticipate will happen takes time to kick-in, you will eat into potential profits.

The Best Ways to use Data

Some time ago, short-selling was much less regulated. Firms could take short positions, and that was that. In a response to claims of market manipulation, authorities now require anyone with a short position of a certain size to report it and sites collate and report that information.

The core process of short-selling stocks works on the same principles as buying a long position. The execution of the trade using an online broker also follows the same pattern — you just click ‘sell’ rather than ‘buy’.

Tools such as the short tracker can offer an insight into the mood in the market or be a useful tool for those considering Pairs Trades / Long-Short strategies. While it has inherent risks, short selling was originally developed to allow traders to reduce risk on otherwise long portfolios.

A ‘naked short’ just selling outright can be a riskier proposition. Not only are losses potentially infinite, but equity markets tend to rise gradually over a long period, with short and dramatic sell-offs occurring at irregular intervals.

Getting stuck in a short position can be a painful and long drawn out experience. You might be correct in your analysis that a particular stock is overvalued, but if there isn’t a catalyst that brings that fact to the attention of the rest of the market, price can continue to creep up. If that happens, it can feel like you’re enduring a ‘death by a thousand cuts’.