Hedge funds are betting against your investments – here’s how to beat them

DIY investors should take stock of their holdings as professionals ramp up their bets that struggling companies have further to fall. The number of “shorts” – bets made by hedge funds and large investors that a company’s share price will fall – has started to creep up against stocks widely held in Isas and pensions.

Beyond Meat, a vegan burger maker, saw the value of bets against it rise by $54m (£39.6m) in the first week of the year, according to the data analytics firm S3 Partners. It had an enormous $1.3bn of registered short interest as of Jan 6 amid concerns over its long-term profitability.

Investors had hailed the company as a pioneer in the future of food, which pushed its market value to as high as $4bn (£2.9bn) even though it generated just $122m in gross profit.

The buzz around the company drew in a number of British DIY investors, with the company ranking as the 36th most-held stock among customers of eToro, a trading platform.

Yet shorting the stock has been more lucrative than owning it of late: the shares have fallen by 54pc over the past year. Paul Allison of the trading platform Freetrade said investors should take high levels of short interest in companies as a sign to review their holding.

“This should be a prompt for DIY investors to check that their own views are still valid,” he said. “It’s useful to be aware of what drives professional investors to short.”

He added: “It is perfectly plausible to disagree with high short interest. But high short interest is a legitimate reason to go over one’s own investment rationale and perhaps take a closer look at the fundamentals.”

Other popular stocks have felt the sting of shorts. In Britain, the City regulator, the Financial Conduct Authority, compels professional investors to disclose short positions if they exceed 0.1pc of the company’s market value. 

Online shopping company Boohoo ranks among the most shorted, with 4pc of its shares being used to bet against it. The stock is the 44th and 15th most held share on Interactive Investor and Freetrade respectively.

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