When I’ve owned heavily-shorted UK stocks (the ones a lot of hedge funds are betting against) in the past, it typically hasn’t ended well. More often than not, these stocks have gone on to tank, resulting in nasty losses for my portfolio.
With that in mind, today I’m going to highlight three UK-listed companies currently being shorted heavily. Given the attention these stocks are getting from short sellers, I think investors should consider avoiding these names right now.
Losing customers
First up is FTSE 250 wealth management company abrdn (LSE: ABDN). According to FCA data, it’s currently the sixth most shorted stock in the UK.
Looking at recent headlines, I can see why this stock’s being targeting.
For starters, the active investment manager’s really struggling to compete with passive managers like iShares and Vanguard.
In recent years, customers have been pulling their money from the company’s funds in droves due to the product’s underwhelming performance (an issue I highlighted last year).
Secondly, the company’s allowed its costs to become way too high. Last year, its cost-to-income ratio was 82%.
Now it’s worth pointing out that a recent update from abrdn showed a return of client inflows. So maybe the company’s starting to turn things around.
I think it’s a risky stock however. The share price is in a downtrend and the dividend payout doesn’t look sustainable.
Too much competition
Next we have online fashion retailer ASOS (LSE: ASC). It’s the UK’s third most shorted stock at present.
Now this is a stock I’ve owned in the past. It turned out to be a bit of a disaster though. At one stage, I was sitting on a big profit. However, my profit turned into a loss when the company’s revenue growth slowed after the pandemic.
If only I’d listened to the short sellers, who were betting against the stock at the time.
Looking at ASOS today, things don’t look good. Revenue growth is pretty much non-existent and the company’s losing a lot of money.
There’s a chance the company could turn things around, of course. After all, online shopping’s still popular.
A turnaround won’t be easy however, given the level of competition in this space today.
A bet against the UK consumer
Finally, we have home improvement company Kingfisher (LSE: KGF), which owns B&Q. It’s currently the fourth most shorted stock in the UK.
This short trade seems to be a bet against UK and European consumers. Right now, a lot of them are struggling due to higher interest rates and inflation which means less disposable income for house renovations.
It’s worth noting that in March Kingfisher announced its third profit warning in six months. The group said it was cautious on the overall market outlook because of the time lag between improving housing demand and home improvement demand.
Personally, I’m not as bearish on this company as I am on the other two stocks. If interest rates were to come down, the company’s fortunes could improve.
That said, I am not tempted to buy. Given the high level of short interest, I think avoiding it is a smart move.
