High street remains in hedge funds’ sights as bets against the consumer sector rise in final quarter

Hedge funds continued to turn the screws on high street retailers, restaurants and makers of consumer goods at the end of last year, with short positions in the sector increasing 20 per cent.

The rise in bets against the industry came in the final three months of the year, and means nearly one-third of total UK short positions are now taken in companies in the consumer sector.

Troubled department store Marks and Spencer remains the second most shorted company on the market, with 11.52 per cent of its stock, worth around £470m, being held by short sellers and three funds having raised their bets against it in the last month.

Funds Marshall Wace, Pelham, Lone Pine and Blackrock hold a combined 7.03 per cent (£287m) of the company’s stock, according to publicly disclosed data from the Financial Conduct Authority (FCA).

Investors short stocks when they believe a company’s share price is likely to fall, borrowing the stock and selling the shares, with the intention of buying them back at a lower price to make profit.

Marshall Wace and co’s continued high positions mean the funds think Marks and Spencer’s share price will continue to tumble.

Around 40 per cent of the top 50 shorted companies in 2018 were in the consumer sector, according to research.

Richard Hodgson, restructuring and insolvency partner at Linklaters, said: “An increase in short positions against consumer businesses shows just how fragile the sector is and how things may be expected to pan out.

“At a time of great political and economic uncertainty, in particular arising from Brexit in the UK, but also from international trade disputes and the slowing of a number of large economies globally, UK retailers are struggling with a perfect storm of challenges including falling consumer confidence, increasing business rates, customers moving online and large inflexible store portfolios.

“We saw HMV fall into administration at the end of 2018, joining a long list of retail insolvencies last year, and, unfortunately, this data suggests that the sector is not about to turn a corner.”

Britain's high street retailers remain in distress after disappointing footfall was recorded during the Black Friday weekend in November and over the festive season, both key shopping periods.