The FTSE 100 has climbed almost 20% in a straight-line since the dark days of ‘Liberation Day’ in early April to make new all-time highs of 9,175. The relentless rally has also seen more shares notch up highs in the wake of positive sentiment.

This type of market backdrop is often a fertile hunting ground for short sellers, that is, institutions looking to make money from a subsequent fall in share prices.

This article looks at recent activity of short sellers to identify which stocks and sectors institutional investors have targeted, and where those bets have increased the most since early April.

WHAT IS SHORT SELLING?

Professional investors have the option to make money from falling share prices in addition to rising ones. These investors follow so-called long/short strategies.

They do this by borrowing stock from a prime broker which they then sell with the intention of making a profit when the shares fall in value. This is risky business compared to buying shares because it exposes the seller to potentially unlimited losses should the shares go up instead of down.

There is also a cost of borrowing stock which needs to be factored in, as well as the prospect of margin calls, where the seller must post collateral to cover short-term losses.

For these reasons short selling is not suitable for most retail investors. However, investors can benefit from the activity by buying long/short hedge funds. Generally, investors need to qualify as sophisticated depending on the fund structure.

One example is Argonaut Absolute Return Fund (B79NKW0), managed by Barry Norris who has notched up 10.6% and 10.3% annualised returns over the last three and five years.

Norris seeks to generate superior risk-adjusted returns by investing in a concentrated, deeply researched portfolio of equities. The fund typically owns between 30 and 50 long positions and 20 to 50 short positions.

Investors can also access a selection of traditional funds which run short books as part of their wider mandate.

The Financial Times recently reported that long/short funds saw their first inflows from investors in over a decade following strong returns in the first half of 2025 raking in $10 billion of fresh money.

There is a misconception short sellers are ‘evil’ and spread lies to pull down a share price, so they financially benefit. While there are examples of short sellers who do operate in such a way they are largely the exception rather than the rule.

Many short sellers do in-depth research into a company, and they take a short position if they think the valuation looks excessive and could revert to the mean, they spot something worrying in the accounts, or they think the business is challenged and could struggle, among other factors.

SHARES WITH A BIG INCREASE IN SHORT INTEREST

UK REIT (real estate investment trust) Primary Health Properties (PHP) has seen one of the biggest increases in shorting activity in recent months.

The investment trust has been battling US private equity group KKR (KKR:NYSE) to buy medical centre property owner Assura (AGR). The target’s board recommended PHP’s cash and shares bid in June, but the subsequent decline in PHP’s shares is telling.

PHP has offered 0.3865 new shares and 12.5p per share in cash, together with a 0.84p special dividend. Shares in PHP are currently trading at 95.40p, meaning the equity component of the offer is worth 36.87p.

Add in the other bits and that values Assura at 50.21p per share. KKR’s best and final offer is 50.42p in cash, meaning Assura shareholders would be better off with the private equity group. Acceptance levels for the PHP bid have been minimal to date.

Short sellers will have been watching this situation closely as Assura’s board seem to be happy to back whoever offers the most money.

If PHP loses the bid, its share price could potentially fall back further and that would net the short sellers a profit. After all, Assura would have a new owner with deep pockets to accelerate growth and that could make life harder for PHP to compete.

Food-to-go brand Greggs (GRG) has also been popular with short sellers, fueled by the firm’s dismal operating performance which it blamed on the weather.

Those excuses seem to be wearing thin following a first-half report (29 July) where the baker confirmed full-year 2025 earnings would drop below last year’s levels as the value sausage roll-to-sandwich retailer continues to grapple with tougher trading conditions.

There is increasing debate around whether Greggs has bitten off more than it can chew and reached ‘peak sausage roll’.

Management is adamant that it can open 140 to 150 net new shops this year and continues to see an opportunity for ‘significantly more than 3,000 shops’ over the longer term.

The weather has also been a theme for the UK’s largest tenpin bowling firm Hollywood Bowl (BOWL) after management Cited a prolonged period of ‘unprecedented’ dry and warm weather in the Spring as impacting short-term trading.

Yet more sunny weather through June appears to have attracted the interest of short sellers, with the amount of shares on loan increasing from 0.6% to 1.7% at the end of July.

FUNDS WHICH SELL SHORT

BlackRock Throgmorton (THRG) aims to provide investors with capital growth and an attractive total return by investing primarily in UK small- and mid-cap companies.

Unusually for the sector, Throgmorton’s portfolio may include an allocation to short as well as long positions. Manager Dan Whitestone recently celebrated 10 years at the trust, as well as his ninth year of outperformance.

Over the 12-months to November 2024, THRG reported an NAV (net asset value) total return of 16.3%, besting its benchmark by 2.2%.

Analysts at research firm QuotedData wrote: ‘These results not only highlight Dan’s skill in stock selection, having adapted the portfolio to accommodate for changing market dynamics, but also the significant valuation opportunity presented by the UK market.’ 

Chris Tennant co-manager of Fidelity Emerging Markets (FEML) says: ‘Taking out short positions allows us to profit not only from the winning businesses in each industry, but also from the losers. We make use of both pair trades, where short positions are paired against long positions, and idiosyncratic shorts. 

 ‘We have a pair trade in the Asian auto battery market, with several short positions in indebted battery makers that are losing market share to Chinese peers such as CATL, in which we have a long position. 

‘We hold several idiosyncratic shorts in the paints sector too. In one particular Asian market the paints industry used to be an oligopoly, but a few years ago a new entrant launched a paints brand with a significant capital injection into the market. This has resulted in huge oversupply just as volume growth was slowing rapidly.‘

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