* UK retail stocks top shorts in FTSE 250
* Online spending, falling consumer demand, hits retailers
* Dozens of UK, U.S. funds bet against well-known brands
By Tommy Wilkes
LONDON, Jan 16 Hedge funds are betting that a
prolonged consumer squeeze and a further shift to online
shopping could spell trouble for Britain's retail chains, and
are targeting some of its best-known electrical, clothes and
With the economic downturn and government tax hikes eating
into consumer spending, many hedge funds believe that less money
to go round will mean few firms emerge unscathed.
High street entertainment retailer HMV and rival
Blockbuster UK called in the administrators this week, both hit
hard by customers moving online to buy music or
Electricals firm Dixons, Argos owner Home Retail
, and supermarket giants Tesco and J Sainsbury
are among those whose stocks are being shorted by
funds, data for bets outstanding as at Jan. 14 published by
Britain's Financial Services Authority shows.
Dixons, which has made one half-year profit in Britain and
Ireland in five years, faces an existential threat from internet
rivals, one fund manager said.
"They can't differentiate their products and they can't
offer a lower cost product offering. It makes it very difficult
for them," he said.
Dixons' rival Comet went into administration late last year,
while camera specialist Jessops became the first high-profile
failure of 2013 when it called in administrators, closing 187
stores with the loss of 1,370 jobs.
In other industries, while predictions are less
catastrophic, firms targeting middle-income customers will
struggle, fund managers and analysts say.
Top-end clothes and food retailers still appeal to wealthy
shoppers, while firms such as Associated British Foods'
discount clothing business Primark are winning over
cost-conscious consumers in tough economic times.
In the key food sector, for example, upmarket Waitrose, part
of the John Lewis Partnership, as well as discount chains Aldi
and Lidl, saw strong sales growth just as Morrison and
Sainsbury's posted disappointing performances for the Christmas
The top five most shorted stocks in the FTSE 250 - as
measured by the percentage of their shares outstanding on loan,
a common measure of short-selling interest - are all retail
stocks, according to research from Markit.
Short-selling is the practice of betting on a price to fall.
Managers can profit from their view by borrowing shares and
selling them in the hope of being able to buy the share back at
a cheaper price before returning it to its original owner.
Hedge funds are notoriously shy about revealing - even to
clients - the reasons for shorting a certain stock. Most do not
publish details of their shorts in monthly letters that list the
fund's top holdings and are sent out to investors.
Shorting also remains a controversial practice after many
funds were blamed for exacerbating volatility during the height
of the 2008 financial crisis by betting against shaky banks.
Supporters say short-selling improves the efficiency of markets.
Odey Asset Management, one of London's best-known funds, and
the U.S. firm Lone Pine Capital, are among at least nine funds
with bets against Home Retail, which is reinventing its troubled
Argos business for the digital age, the FSA data showed.
Lone Pine built up its short position to 1.41 percent
earlier this month while Odey has a position of 0.51 percent.
Lee Ainslie's Maverick Capital, a veteran stock-picker, is
holding a huge 4.45 percent short - equivalent to about $70
million - in Home Retail.
Meanwhile, Lansdowne Partners, which manages around $12
billion in assets and runs the largest European hedge fund
focused on shares, has a 0.57 percent short position in Tesco,
Britain's biggest supermarket chain, according to the FSA data.
Lansdowne has also built shorts of 2.51 and 0.6 percent
against rivals WM Morrison and Sainsbury's respectively, the
data showed, as well as a hefty 2.73 percent bet against
220-year old books and stationery seller WHSmith.
The FSA has published its list of all short positions that
reach 0.5 percent or more of a company's issued share capital
since Nov. 1, following the introduction of European Union rules
to improve transparency.
ONLINE VERSUS HIGH STREET
Elsewhere, AKO Capital, BlackRock Investment Management and
Soroban Capital Partners are shorting Marks and Spencer.
Last week the retailer reported worse-than-expected non-food
According to the data, hedge funds are also betting against
loss-making baby products retailer Mothercare and
floor-covering firm Carpetright.
"Disposable income in the UK is still being squeezed
mercilessly: wage growth is currently running at less than half
the rate of inflation ... One way or another, shoppers in the UK
have less money to spend and they are increasingly circumspect
of how they spend what remains," Mike Ingram, a market analyst
at BGC Brokers, wrote in a note on Tuesday.
Not all the hedge fund bets against retailers have gone
their way. Shares in Home Retail, for example, rose by more than
a third last year as investors reacted positively to the
company's plans to restructure Argos for the digital age.
Many have also faced a "short squeeze" when results that
surprise to the upside suddenly send shares hurtling higher,
making it more costly for hedge funds to return the share they
borrowed from its original owner.
And while the focus of bets have been on the High Street,
some have targeted online retailers too, often at a loss.
"There's been a general view for some time among funds that
it's better to be long online retail and short the bricks and
mortar," one hedge fund investor said.
"Managers have found it a lot easier to get their heads
round (high street shops) and see that some of these guys are
struggling and will even go out of business."
But at least 11 hedge funds including Steve Cohen's $14
billion SAC Capital are taking aim at Ocado, with many
believing the upmarket online grocery business will struggle to
be profitable. Shares in the group, however, finished last year
up by around 50 percent after falling heavily in 2011.
The value of shares in ASOS, the online fashion
retailer, and also the target of short-sellers, doubled in 2012
as sales grew.