Short sellers have homed in on the supermarkets as they look to profit from the gloomy outlook for food retail.
Hedge funds have increased the size of their short positions in Tesco, Sainsbury’s, Morrisons and Ocado over the past year, according to data compiled for The Grocer by financial information services company Markit.
Ocado is the fourth most shorted stock in the FTSE All-Share, with an estimated 14.49% of its shares out on loan to short sellers, compared with 9.89% last year.
The figure was even higher, at 18.01%, in early November before Ocado secured £36m in new financing. Hedge funds including Kynikos Associates, GMT Capital and Blue Ridge Capital have all taken out large bets against Ocado.
But hedge funds aren’t limiting their short positions to minnows. Unlike the renowned investor Warren Buffett, who upped his shareholding in Tesco after its January profit warning, Lansdowne Partners reversed its long-held investment in the supermarket and now has around £160m short bet against it - equivalent to 0.62% of the shares.
Lansdowne also has a similar size bet against Morrisons, which adds up to about 2.51% of the grocer’s share capital. The percentage of Morrisons shares out on loan to short sellers has more than doubled over the past year to 3.13%.
Interestingly, Lansdowne’s bets against Tesco and Morrisons are counterpoised against a recently upped £28m long position in Ocado - equivalent to 5.7% of the company - which an Ocado spokeswoman called “a big conviction buy”.
However, Seymour Pierce analyst Kate Calvert said the position most likely reflected a belief that Ocado would at some point be acquired, rather than a conviction that it would be successful as an independent company.
Even Sainsbury’s, whose strong trading performance has pushed its share price up 13% over the past year, has seen the percentage of its stock out on loan rise from 0.77% to 2.28% year-on-year.
Inflationary pressure, weak consumer spending and continued space growth have all made the sector a target for short sellers.
Panmure analyst Philip Dorgan said: “The food retail sector faces a tough 2013. The mismatch between supply and demand remains, and non-food is disintermediating online.”