Hedge funds bet £3bn against British retail's biggest names

Around 15pc of Debenhams shares are on loan to hedge funds who are betting that shares in the department store chain will fall further

Hedge funds have bet more than £3bn against Britain’s biggest retail names as fears grow about a slowdown in consumer spending and the health of bricks and mortar retail chains.

High street stalwarts Marks & Spencer and Debenhams, pet chain Pets at Home, and grocers Morrisons and Ocado are five of the 10 most-shorted stocks in the UK.

Around 12pc of Debenhams shares are currently on loan to hedge funds that have bet the department store chain’s latest turnaround plan will fail to revive falling fashion sales.

Short-sellers borrow stock from larger investors before selling it on in the hope of buying it back at a lower price in the future and profiting from the difference.

Following the financial crisis the City’s watchdog has required the disclosure of all short positions representing more than 0.5pc of the target company. 

City hedge funds are targeting UK retail stocks

The diclosure threshold means the bets against retailers could be much greater than the £3bn total calculated by The Sunday Telegraph from public data.

Short-sellers are targeting the high street as fresh figures last week from GfK showed that consumer confidence has slumped to its lowest level since immediately after the Brexit vote amid rising inflation.

Official figures have also revealed that the UK is experiencing the longest period of falling disposable household income since the 1970s.

Crispin Odey, whose fund Odey Capital Management has short positions worth over £44.7m against Debenhams, Pets at Home and Sainsbury’s, said that he was as concerned about the structural issues that dogged the  British retail sector as the gloomy economic outlook.

“Retailers’ operating profits now scarcely cover their rents, rates and services bills,” he said.

“They have then had to face the fall in the value of sterling which has made purchasing inventory abroad significantly more expensive and retailers like Debenhams have long 20-year leases that they can’t get out of.

Crispin Odey

“At the same time borrowing is increasing and people are dipping into their savings and I think we are at a peak of an economic cycle that will all come to a horrible end.

“I don’t think Tesco or Sainsbury’s will go bankrupt, but I think they have got further to fall”, he added.

London fund Marshall Wace has been the most aggressive short seller against the UK retail  sector, betting over £360m on the future share price falls in Marks & Spencer, Ocado, Pets at Home, Halfords, Sainsbury, Morrisons and Sports Direct,

Blackrock, the world’s biggest fund manager, has bet around £244.7m against retailers from Halfords to B&Q owner Kingfisher.

Shopping centre owners have also been targeted by hedge funds who are tapping into changing consumer habits away from traditional retailers. Hammerson, which owns Birmingham’s Bullring, and Intu, which counts Lakeside among its assets, are on short-sellers’ hitlists.