You can quite easily find out what hedge funds are short selling as they have to notify the exchange when their position size is more than a certain amount of a listed company or financial instrument. Usually, hedge funds have to disclose when their short positions exceed 0.5% of a company.
You can find out what professional investors are short selling on the FCA website or Shorttrackker
- FCA website: The FCA has a Notification and disclosure of net short positions page on its website with a spreadsheet that you can download to see all the
- Shorttracker: run by Castellain Capital the website shows the data from the FCA spreadsheet in table form that is searchable by stock, fund, data and so on. You can also see the short discloser percentages in graph form.
Copying what hedge funds are shorting
Now you know how to find out what hedge funds are shorting. But. Before you start playing amateur sleuth and screeching “core blimey, there’s more shorts than a Wham concert in this stock” it’s important to cover the risks of following hedge fund’s short positions…
Hedge funds don’t get short-selling right all the time
There was a great article in the FT years ago about how hedge fund managers at GLG (one of the biggest UK hedgies and owed by Man where I used to work) about how they only get stock picking right about half the time. And that that, was in fact, ok.
The reason being of course that (as you should know by now) it’s not what you buy or sell. Trading, is really about how you manage risk and your positions after a trade has been put on.
GLG’s approach is as basic as buy low, sell high in that they run profits and cut losses. So, if they only pick winning trades half the time, they still make money by making having a greater win:loss ratio on the positions.
If you want to know more about win-loss ratios read The Art of Execution by Lee Freeman-Shor. It’s one of the best books on post-execution trade strategy.
Hedge funds operate on a long/short basis
Most alternative asset managers, aka hedge funds, will have two funds. One will generally be a long-term income or growth fund that invests in assets they believe will outperform the market or are income-generating through high dividends or bond yields.
Hedgies may also have a long/short portfolio which consists of stocks or assets that are market neutral. The idea here is that it doesn’t matter if the overall market goes up or down as the fund will have an equal amount of long and short positions (albeit with a slight weighting if they have an overall market bias).
This means that if a hedge fund has a large disclosed short positions they may not actually think the stock is going to go down. It may be part of a sector or pairs trade. For example, if a hedgie doesn’t know (or care) whether the banking sector in the UK will go up or down. But does think that Barclays will under-perform Lloyds, they will sell Barclays and buy Lloyds. In this case, they have limited their exposure to large moves in either the underlying index or the banking sector.
Hedge funds are generally always invested
When an investor gives a hedge fund their money they are doing so for the fund manager to have it actively traded in the market. Even though hedge funds tend to be higher risk than other types of fund they still have to have some sort or risk controls and portfolio exposure caps.
They do not (or should not) have the money sat around in cash then put all their eggs in one basket and Rio trade on a whim.
So when hedge funds disclose a large short position it will probably be part of an overall portfolio of positions hedged with options, index futures or some other OTC product you’ve never heard of and wouldn’t be able to trade even if you wanted to.
Liquidity from professional short-sellers
Well, what makes a market is opinions. You can either jump on the bandwagon and follow them or wait patiently for the bear squeeses when they buy their large position back.
What the major players are buying or selling, as with technical analysis, economic indicators, news flow, fundamental research all provide stimulus for trading.
If you want to see what’s going down flick through the charts on Investors Intelligence. You can rank stocks by Stockcube’s propriety trend score as well as P&F breakout signals.
Where can you short sell the market?
You can short the market with these types of derivatives contracts: