Hedge funds are increasingly betting against consumer-facing companies as short-sellers are looking to capitalize on fears of a worsening UK economy.
With the increasing regulatory pressure on water companies, south-western water utility provider Pennon PNN has climbed to the top of the most-shorted list. The second-most shorted stock is restructured oil engineer Petrofac PFC, a company which consistently topped the list in 2024 as Brent crude oil prices weakened.
Recently, though, DIY giant Kingfisher KGF has shot up the list. While the B&Q owner has been a popular short bet after the pandemic DIY boom-and-bust, the number of shares shorted has increased from below 4% in October last year to 6.83% on Feb. 10, 2025.
Among the 10 most-shorted stocks, we also find household names Domino’s Pizza DOM, Ocado OCDO and Sainsbury’s SBRY. Additionally, above the 3% cut off in our list we find Boohoo BOO, which has fallen down the list over the past months, and Pets at Home PETS, which has climbed higher.
Dan Coatsworth, investment analyst at AJ Bell, highlights that the increase in consumer stocks being shorted could be down to decisions made by Chancellor Rachel Reeves in the autumn budget. Both consumer and business confidence has dropped, and on Feb. 6 the Bank of England halved its 2025 UK economic growth forecast to 0.75% and predicted that inflation will hit 3.7% this year.
Coatsworth says: “Put these things together in a pot and it’s a recipe for disaster if you’re a retailer or leisure operator dependent on consumer spending. It’s no wonder that short-sellers are sharpening their knives and hoping to make a pretty penny.”
Kingfisher Predicts Weak Demand
In the case of Kingfisher, the company warned in November 2024 that uncertainties around budgets from new governments in the UK and France had a negative impact on demand for its products and services.
“Layer on top the prospect of higher employment-related costs, an even more cautious consumer and fierce competition, and it’s easy to see why an investor might choose to short the stock,” Coatsworth says.
AKO Capital’s 1.71% bet against Kingfisher is the largest position taken, and overall counts as the seventh largest net short position taken in the past 30 days. Additionally, GLG Partners and Kintbury Capital both have net short positions of above 1% each.
However, this is not Kingfisher’s first time high up the most-shorted list. It topped our list in August 2022 with almost 10% of its stocks shorted.
Another company that has 6% of its stocks shorted, is technology company Alphawave IP AWE, which is up 68% this year, recovering from a tough 2024. The company attributes its 2024 losses to its transitioning from developing technology for data transmission into becoming a semiconductor product company producing silicon.
Short-Sellers Suffer When a Stock Soars
Market participants holding short positions in stocks that rise sharply like Alphawave can suffer extreme losses due to the use of leverage, or borrowed money. Some traders use “limit orders” to cap their losses in this scenario the same way they use “stop losses” when share prices are falling.
Recently, investors in Nvidia ETFs that offered “long” exposure had their fingers burned when the bellwether AI stock slumped on Jan.27. Because of the use of leverage, investors saw a 17% share price loss magnified to more than 50%.
Stock Price Volatility During Earnings Season
As we go through earnings season where companies publish their accounts, stock moves can be extreme. This provides opportunities for traders looking to make money off negative earnings if the reports trigger a sell-off.
Of the stocks that Morningstar covers that feature in this list, Ocado, Sainsbury’s and Burberry BRBY published quarterly figures in January. Ocado will be publishing its full-year results on Feb. 27, Kingfisher on Mar. 25, Sainsbury’s on Apr. 17, and Burberry on May 14.
Our list of most shorted stocks, based on data provided daily from the Financial Conduct Authority, adds together all open short positions taken over the past 30 days to provide a picture of net short positions in a company.
We include all stocks where at least 3% of its shares are shorted. In February 2025, the list includes 22 stocks, with net short positions ranging from 7.05% (Pennon) to 3.16% (CVS). This is up from 14 stocks in October, where the range was wider, from 9.19% (Diversified Energy Co DEC) to 3.28% (Auction Technology ATG).
Also noteworthy is the reduction in Burberry positions. The fashion house fell out of the FTSE 100 last year after a tough year of management changes. Its shares jumped in January, however, on the news of narrower-than0expected losses. The stock is currently up 23.06% year to date and has a Morningstar Rating of 3 Stars.
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, and scandal-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.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
