Do-it-yourself investors should take stock of their holdings as professionals increase their bets that struggling companies have yet to fall. The number of “shorts” – bets made by hedge funds and large investors that a company’s share price will fall – has started to climb against widely held stocks in Isas and repos.
Beyond Meat, a maker of vegan burgers, saw the value of bets against it rise by $54m (£39.6m) in the first week of the year, according to analytics firm S3 Partners data. It had a whopping $1.3 billion in short interest recorded as of January 6 amid concerns over its long-term profitability.
Investors had hailed the company as a pioneer of the future of food, which pushed its market value to $4bn (£2.9bn), even though it only generated 122 million dollars in gross profit.
The buzz around the company has attracted a number of UK DIY investors, with the company ranking as the 36th most widely held stock among clients of eToro, a trading platform.
Still, shorting the stock has been more lucrative than owning it lately: shares have fallen 54% in the past year. Paul Allison of trading platform Freetrade said investors should take high levels of short-term corporate interest as a sign to review their stake.
“This should encourage DIY investors to check that their own opinions are still valid,” he said. “It helps to be aware of what drives professional investors to sell short.”
He added: “It is perfectly plausible to disagree with high short interest. But high short interest is a legitimate reason to rethink one’s own investment logic and perhaps take a closer look at fundamentals.
Other popular stocks have felt the sting of the shorts. In Britain, the City’s regulator, the Financial Conduct Authority, requires professional investors to disclose short positions if they exceed 0.1% of the company’s market value.
Online retail company Boohoo ranks among the most shorted, with 4% of its shares being used to bet against it. The stock is the 44th and 15th most-held stock on Interactive Investor and Freetrade, respectively.