For nosey investors, the Financial Conduct Authority’s short register is a fascinating insight into which companies are out of favour with other investors.
Since the financial crisis, the FCA has published a daily list of the short positions that investors hold against UK stocks. It has become a valuable barometer of whether or not a firm’s share price may be due a correction.
Shorting is when you effectively bet against a company – instead of buying its shares in the hope their value rises, you take a reverse position whereby you profit if the shares fall.
The five most unloved UK stocks are the moment are Kier Group, the AA, Thomas Cook, IQE and Anglo American.
Outsourcing giant firm Kier Group is the most bet against currently, with short positions in its shares amounting to 11.9% of its market capitalisation. In total, some 14 companies have more than 7% of their stock being shorted.
Kier Group (KIE)
Kier Group has been firmly out of favour with investors since the collapse of outsourcing giant Carillion, as investors fear for the long-term prospects of the sector.
A profit warning has not helped matters; in June the firm’s shares fell more than 22% after it warned that full-year profits would be lower than anticipated at around £120 million rather than the previously forecast £169 million.
Six investors currently have short positions in the stock, TT International and Marshall Wace have the largest positions at 3.4% and 2.5% respectively.
While the two would have profited from Kier Group’s share price plunge earlier this summer, sometimes a short position takes time to come good. The firm’s shares are up by more than 60% over the past month from 73p to 113p – an upward trend that will have hurt those betting on further falls. Still, the share price is still 87% lower than it was a year ago when it stood at 891.9p.
Not all investors are so pessimistic on its prospects, however. According to Morningstar Direct data, Kier makes up of 2.5% of neutral-rated Woodford Income fund and 1.6% of five-star rated Seneca Global Income & Growth Trust.
The AA (AA)
The second most-shorted on the London exchange, with almost one tenth of its shares in issue on loan to short sellers, the AA has endured a long-run of poor share price performance. Earlier this year it revealed a dramatic 50% fall in profits as it struggles to maintain member numbers.
The motoring and insurance company has see its share price half since last August from 112p a year ago to 54.8p today. BlackRock holds the largest short position in the firm at a hefty 5.9%, while Odey Asset Management, which has a strong track record of making the right short calls, holds just shy of 1%.
Thomas Cook (TCG)
Troubled holiday group Thomas Cook had already asked investors for £750 million in May as it battled to stay afloat. Earlier this month it announced it is seeking an extra £150 million from bondholders and is also looking to sell off its airline business to Chinese investment firm Fosun.
Tour operators are already battling a number of headwinds, as many holidaymakers choose to stay in the UK this summer amid Brexit uncertainty and a plunge in the pound.
Almost 9.5% of its shares have been short-sold and part of that is due to its deteroriating financial position.
The stock has plunged by an extraordinary 92.8% over the last 12 months, bringing down its value to only 6p. TT International and Whitebox Advisors each a short position in the firm of almost 3.5%.
IQE (IQE)
Computer chip-maker IQE has been hurt by the trade war between the US and China – it supplies semiconductor products to China’s mobile phone firm Huawei, which has been one of the targets of President Trump’s trade tariffs over recent months. Weaker demand for smartphones has also caused concerns about the firm’s earnings forecasts.
While IQE tried to reassure investors in July that new contracts in Asia would generate big orders, its shares are still almost half the level they were a year ago at 54.5p. The shares have been volatile – climbing from 17p in mid-2016 to a high of 174.2p in November 2017 and fluctuating over recent months.
Four firms hold short positions in IQE, including Coltrane Asset Management, with a 4.3% short position in the shares.
Anglo American (AAL)
Fears of a slowdown in China has sparked concerns for the prospects of mining giants such as Anglo American, which produces platinum, copper and nickel among other commodities. The prospect of a global recession – more likely as the US/China trade war continues, emerging markets struggle and Brexit uncertainty lingers – also casts a shadow over the cyclical commodities sector.
While Anglo American’s share price has remained buoyant, it has still attracted the attention of a number of short-sellers. Some 8.25% of the firm’s stock is out on loan. BNP Paribas has a 3.3% short position in the stock, the largest of six shorts.
The stock has a three-star Morningstar rating but no economic moat, meaning it has little in the way of competitive advantage over its peers. Morningstar analyst Mathew Hodge has a fair value estimate of 1,800p for the shares, which currently sit at 1,789p.
