Short sellers cash in on coronavirus stocks crash

The number of wagers by professionals cashing in on stock market falls has soared, as coronavirus and an oil price slump caused share prices to plummet.

Investors can bet a company’s share price will fall, known as “shorting”. The technique can be used to profit when markets perform badly, or balance risk when investing in shares.

Since the outbreak of coronavirus, the London and New York stock markets have fallen by a quarter. The number of “shorts” on the London market has increased more than tenfold, from fewer than 50 at the beginning of the year to 550 in the final week of March, although they have tailed off as markets have risen slightly this week.

There is often an alternative “pro” investment case for even the most shorted stocks. However, knowing which stocks are being shorted can help DIY investors spot risky bets.

So what are the most bet-against shares on the London market and why?

PREMIER OIL

This British oil company is currently the most shorted stock on the market, met by reserves, which stand at 53p per share.

The trust yields 5.7pc and its shares currently trade at a discount to net asset value, meaning they are priced more cheaply than the portfolio’s value. It is one of seven British income investment trusts that yield more than 5pc and have enough reserves to last more than 18 months.

The next most robust trust in terms of dividend sustainability is JP Morgan Claverhouse. This yields 5.7pc and has reserves that cover 88pc of its dividend even after accounting for the expected reduced income from its holdings.

Alan Brierley, an investment trust with bets against it representing more than 20pc of the value of the firm’s shares, according to researchers Edison. The firm suffered as the price of oil fell to an 18-year low. This severely hit its earnings.

FLUTTER ENTERTAINMENT

This sports betting firm owns high street bookmakers Paddy Power. It has moved from being the third-most shorted stock to the second, with around 13.5pc of its shares now being shorted. This follows the cancellation and researcher at Investec, the bank, said the experience of these trusts in the financial crisis gave him comfort that they would be able to ride out the current predicament. Eleven trusts even increased dividends during the credit crisis.

Investec also highlighted that many trusts would be able to withstand another 30pc cut to dividends in 2021, whereas funds would be obliged to pass this too on to investors. Law Debenture and Claverhouse could cover more than a third of the annual dividend by using reserves after a second 30pc fall.

Investors may also want to look beyond these shores for income, as the postponement of sporting events across the globe.

EASYJET

The values of dividends slashed by businesses as the coronavirus crisis hits investors

Shares in the airline have fallen as much as 60pc. A new addition to the most shorted list, the firm was forced to ground its entire fleet of aeroplanes this week, following the introduction of international travel restrictions. Only around 6pc of its shares are made up of short bets and many think the shares are now in a good position to rebound once the same rules apply to funds and trusts that invest globally or in a mixture of stocks and bonds.

Majedie is one of the safest global stock options. The £150m portfolio yields 7pc and has enough reserves to cover payouts for the next four years. The Aberdeen Diversified Income & Growth trust invests in stocks, bonds and alternative assets such as gold and property. It currently yields more than 7pc and holds more than two years’ worth of dividends in reserve. It has also suffered a large share price fall recently and can be bought for 76p per share, a discount of 27pc. coronavirus crisis ends and normality returns. The company ranks among the top 10 most bought stocks at brokers A J Bell.

20pc Proportion of Premier Oil’s shares currently held by those betting the price will fall

KEYWORDS STUDIOS

Another newcomer in the top most shorted stocks is this video game developer. More than 6pc of its stock is currently being shorted, with shares down by more than 5pc for the year.

The firm has postponed its annual earnings forecast, saying the rapid spread of Covid-19 has made it difficult to analyse the impact on its business.