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Short-sellers made a profit of £418 million across the entire FTSE 100 index in September, according to recent analysis from Ortex Analytics, a global financial-analytics company.
The FTSE 100 was one of the worst-performing major indexes in Europe in September, as a surge in cases of COVID-19 and tighter restrictions on movement, coupled with renewed concern over Brexit, hit UK assets harder than most regional markets. The index fell 2%, compared with a 1.6% fall in the eurozone Stoxx 50.
The FTSE tracks the 100 companies on the London Stock Exchange with the highest market capitalization. Overall, short-sellers made a profit on 53 out of the 100 companies in the index.
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Some of the FTSE's heavyweight stocks are those that have been worst-hit by the economic fallout of the pandemic, including the jet-engine manufacturer Rolls-Royce; airlines, such as British Airways' parent company, IAG; and financial stock, such as HSBC or Barclays.
Short-selling is when an investor borrows a security and sells it in the current market. They are betting on the security going down in price, in which case they will buy it back at a later date and hopefully at a lower price.
Short-selling has a high risk-to-reward ratio. An investor can secure significant profits but can also end up with infinite losses if not careful. In August, Ortex Analytics found that short-sellers recorded losses of £420 million.
"Last month we saw a number of big trades turn sour for short-sellers, which impacted overall profitability in August," said Peter Hillerberg, a cofounder of Ortex Analytics, in a press release. "At the time, we predicted that the pendulum may swing back the other way in September, and that's exactly what we've seen as short-sellers continue to profit from the uncertainty surrounding the pandemic."
Ortex Analytics outlined the five most profitable and least profitable shorts in September.
"What has been fascinating to note is the extent of the swing for some companies — four of the top five most profitable trades this month were significant loss-making trades in August, highlighting the speed at which fortunes can change during this volatile period," Hillerberg said.
Most profitable
1) Rolls-Royce Holdings plc
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Ticker: RR
Short profit:£187.7 million
2) International Consolidated Airlines Group, SA
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Ticker: IAG
Short profit:£168.8 million
3) BHP Group plc
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Ticker: BHP
Short profit:£125.1 million
4) Royal Dutch Shell Group plc
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Ticker: RDSA
Short profit:£115.1 million
5) Wm Morrison Supermarkets plc
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Ticker: MRW
Short profit:£24.8 million
Least profitable
1) British American Tobacco plc
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Ticker: BATS
Short profit: -£49.4 million
2) Ocado Group plc
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Ticker: OCDO
Short profit: -£48.5 million
3) Just Eat Takeaway.com
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Ticker: JET
Short profit: -£27.9 million
4) Unilever Plc
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Ticker: ULVR
Short profit: -£23.6 million
5) DS Smith Plc
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Ticker: SMDS
Short profit: -£18.6 million
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