UK stocks proved resilient over 2016 despite challenges posed by the UK referendum vote, providing several investment opportunities for fund managers.
Indeed, the 19.07 per cent return recorded by the FTSE 100 and its continued climb in 2017 could now provide a different opportunity for fund managers looking to exploit any potential fall in UK stocks.
Performance of the FTSE 100 over 1yr
Source: FE Analytics
As the FTSE 100 has reached new highs, uncertainty over the UK economy persist as Brexit talks near and the government’s position remains unclear.
Below, FE Trustnet looks at a selection of the UK’s most shorted stocks and the asset managers who have bet on and against them.
Short position data is based on Financial Conduct Authority data compiled by boutique asset manager Castellain Capital.
Tullow Oil
The most shorted stock as of 11 January is FTSE 250 support services business Carillion, but other shorted stocks include online shopping firm Ocado, supermarket Morrisons and outsourcing company Mitie Group.
Indeed, retailers and those with exposure to UK government spending have struggled in recent years as increased competition (among supermarkets) and government spending cuts (for service providers) have taken their toll on revenues.
One interesting shorted company is FTSE 250 constituent Tullow Oil, which enjoyed a strong 2016 as oil prices bounced back last year following months high production and low global growth rates contributed to a weaker demand.
Towards the end of last year, however, oil prices strengthened as the Organisation of Petroleum Exporting Countries (OPEC) agreed to cut productions levels contributing to an improved outlook for 2017.
During the 12 months to 10 January 2017, Tullow Oil saw its share price rise by 132.33 per cent as the sector benefited from improved sentiment.
Tullow Oil performance over 1yr
Source: FE Analytics
In the firm’s latest update on 11 January, it reported expected revenue of around $1.3bn and gross profits of around $500m at its full-year results for 2016.
Yet, despite the improved outlook for oil the London-headquartered firm is one of the most shorted UK stocks, according to data published by the Financial Conduct Authority.
As at 10 January, Odey Asset Management had a 3.84 per cent short position in Tullow Oil. JP Morgan Asset Management subsidiary Highbridge Capital Management also holds 0.58 per cent short position in the stock.
The stock is a top 10 holding for Majedie’s $54m Global Equity and flagship $183m Global Focus funds.
Halfords
Retailer Halfords, which specialises in car parts, camping and bicycles, has overcome a number of challenges affecting the retail sector in recent years.
It reported a 2.2 per cent growth in total group revenue during the first half of its financial year at the end of September 2016.
The retailer rose by 14.11 per cent over the past year, although it experienced a sharp sell-off following the UK referendum result, dropping by 15.15 per cent on 24 June.
Yet, it remains in an unloved sector with several large retailers having experienced low consumer appetite and a rise in costs following the fall in sterling.
Speaking in September, chief executive Jill McDonald said the depreciation of sterling following the referendum would mean “cost headwinds” for the firm, although she remained bullish for the second half.
GLG retains a significant 2.88 per cent short position in the retailer, followed by BlackRock with a 0.99 per cent short position.
In the most recent factsheet for the Man GLG Alpha Select Alternative fund, managers Charles Long and Nick Judge highlighted the retail sector as one with short position opportunities, writing: "On the short side, we continue to see opportunities in businesses where we see a lack of ability to pass on the cost inflation that is discussed above, such as outsourcers, retailers and leisure companies, although, as with our financials exposure, we are also finding longs opportunities in these industries that mean our industry exposure remains quite balanced at this time."
Just one fund in the Investment Association universe has Halfords in its top 10 holdings: TM Sanditon UK Select. The £77.8m absolute return fund has a 1.8 percent position in the retailer.
Telit Communications
Internet of things company Telit Communications is another of the most shorted UK listed stocks. The FTSE AIM company rose by 32.43 per cent last year, but has few backers among the Investment Association’s universe of funds.
Just the three-crown rated Allianz UK Mid Cap fund managed by Andrew Neville counts the firm among its top 10 holdings. Representing 4.33 per cent of the portfolio, the company forms part of the fund’s UK mid-cap growth investment strategy.
Telit Communications performance in 2016
Source: FE Analytics
Among short position holders in the stock are City Financial, Old Mutual, Lombard Odier and Polar Capital.