The UK's Most Shorted Stocks

The company, whose shares are down more than 99% this year, is in rescue talks with creditors. Its shares were suspended after a period of extreme volatility but jumped 50% when they resumed trading on Monday this week.

In the number two slot is Ocado (OCDO), the online retailer that boomed during the pandemic but has struggled since. Its shares are down 55% this year and it is set to be ejected from the FTSE 100 in the latest quarterly reshuffle. Nearly 7% of the company's shares are being shorted, with a number of new positions initiated in April and May.

Another struggling UK company in the news is abrdn (ABDN), whose chief executive will leave this month after four years. The wealth manager's shares are down 13% in the year to date and 27% over one year.

Both Ocado and Abrdn are widely considered to be takeover targets, which makes shorting the stocks – a bet on a share price fall – hazardous. That's because, in trading terms, the market may move in the opposite direction to your bet.

M&A activity in the UK has been revived this year and potential buyers are willing to pay over the market price to acquire UK targets. Miner Anglo American (AAL) and broker and financial services platform Hargreaves Lansdown (HL.) both rejected takeover approaches this year, but their shares are significantly higher than before the process started. This suggests takeovers are still "in play" as far as the market is concerned, and other buyers may still emerge for both businesses. Still, Hargreaves Lansdown is number 12 in the most shorted list.

One company that did accept a takeover approach was Royal Mail owner IDS.

After Czech billionaire Daniel Kretínský paid above market price for the business, shares are up nearly 70%, and the move itself brings an end to a turbulent period of public ownership for the letters and logistics stock. Investors who bought in when the company floated in 2013 will remember the float price was £3.30p. The current price is only just above that, at £3.35. At the time, the IPO was 24 times oversubscribed, and many new owners sold their positions almost immediately when shares soared after the company went public.

Despite the sale of IDS, Sessa Capital initiated a short position of 0.73% on the last day of May.

UK Stocks Under Pressure

Other under-pressure UK companies on the FCA's long list include wealth manager St James's Place (STJ), whose shares are down nearly 25% this year amid regulatory and legal concerns. Still, there’s only a current net short of 0.60%, which is held by Conor, Clark & Lunn Investment. National Grid (NG.) shares have fallen recently amid concerns over a rights issue and the future of its dividend, but again the short interest is modest, with a new position of 0.50% taken out on May 31 by Sculptor Capital Management Europe.

Moving down the table, there are some familiar stocks in the top 10 most-shorted. They include online fashion firms Asos (ASC) and Boohoo (BOO), as well as Nick Train favourite Burberry (BRBY).

Burberry shares are off 25% this year amid a wider luxury slowdown. Asos and Burberry are both covered by Morningstar analyst Jelena Sokolova, and both stocks screen as undervalued according to Morningstar metrics.

Telecoms firm BT (BT.A) is also a familiar name on the daily short list because of years of stock underperformance. But shares are up 7% this year and 26% on the month as the company has beaten financial forecasts and restored its dividend. It's also benefited from higher inflation because many of its contracts are inflation-linked.

In the company's most recent earnings report, new chief executive Alison Kirkby celebrated the shares defying the short sellers by rising this year. "I always love to squeeze the shorts [...] and prove them wrong" she told financial media.

Despite this year's share price bounce, Morningstar analyst Javier Correonero thinks BT is undervalued. With the shares currently around 135p, his fair value estimate is 200p.

What is Short Selling? How Does it Work?

Short selling can be a highly profitable way to exploit the falling share price of companies in distress. It involves selling shares you don't own to make a profit from the fall in the price.

To do this, you borrow them from specialist firms like brokers, sell them at the current market price with the hope of buying them back at a cheaper price later. This active trading strategy is usually only undertaken by professional investors, but often provides an early warning sign of problems ahead that can be picked up on by all.

Firms that have attracted short sellers in the past include Thomas Cook and Carillion in the UK, andscandal-hit Wirecard in Germany. Shorting tends to attract other shorters, however, and some argue it only hastens the demise of a company. Sometimes a company on a shorting list may have terminal problems; other times it’s just a temporary loss of confidence prior to a turnaround, or a buyout, which takes the company off the market or puts it in new hands.

Alongside specialist trading firms and hedge funds, some of the biggest asset managers are involved in shorting, including BlackRock, Jupiter and JP Morgan.