BlackRock is short-selling 16 UK stocks, meaning it expects their stock prices to drop.
The asset management giant, with $10trn under its control, employs some of the finest financial minds and tools going. That makes its moves in the market worth following closely.
Short-selling is how investors profit from stock prices going down. To do it, an investor borrows shares and sells them on the market, hoping to buy them back later after they have dropped.
So, which UK stocks does BlackRock expect to crash and burn?
List of the doomed?
On 3 March, BlackRock held reportable short positions in 16 UK stocks. The Financial Conduct Authority (FCA) requires that funds disclose their short positions if they reach a specific threshold. Specifically, it must be reported when the net short position is equal to or greater than 0.5% of issued share capital.
| Name of Share Issuer | Net Short Position (%) |
| SAINSBURY’S | 2.32 |
| FEVERTREE DRINKS | 1.52 |
| ITM POWER | 1.06 |
| ABRDN | 1.02 |
| GREGGS | 0.87 |
| HARGREAVES LANSDOWN | 0.84 |
| NINETY ONE | 0.80 |
| BROWN GROUP | 0.79 |
| CARNIVAL | 0.78 |
| OCADO GROUP | 0.70 |
| B&M EUROPEAN VALUE RETAIL S.A. | 0.69 |
| KINGFISHER | 0.67 |
| ALLIANCE PHARMA | 0.63 |
| IBSTOCK | 0.60 |
| OCTOPUS RENEWABLES INFRASTRUCTURE | 0.58 |
| ASTON MARTIN | 0.57 |
BlackRock’s biggest short position was in Sainsbury’s (LSE:SBRY), where 2.32% of the company’s issued share capital had been sold short.
The supermarket chain is already trading at a price-to-earnings (P/E) ratio of just 10.5, compared to Tesco’s much richer valuation of 19.6. However, BlackRock could be betting on further earnings contraction for Sainsbury’s, as increasingly budget-constrained shoppers look to discount retailers like Aldi and Lidl for cheaper groceries.
In Sainsbury’s defence, it has cleaned up its balance sheet over the past five years, driving down its debt-to-equity ratio from 40% in 2016 to just 10% this year. In addition, its massive cash balances of £917m are more than enough to pay down its debt in one fell swoop.
Despite Sainsbury’s clean bill of financial health, analysts seem to expect the company to stagnate in coming years. Over the next three years, an average of forecasters’ guesses puts the company’s earning growth on path to increase by just 0.1% annually.
BlackRock’s other heavily shorted UK stocks include FeverTree Drinks (a brand of alcohol, tonics, and mixers), ITM Power (a producer of water electrolysers for hydrogen power), and Abrdn (a global investment company).
Should I buy any of these stocks?
I don’t hold any of these stocks, and I don’t plan on buying any of them. However, I’m not necessarily put off by the fact BlackRock is shorting them.
After all, because BlackRock has its fingers in so many pies, in some cases it will also be holding these same stocks long.
For example, Sainsbury’s website lists BlackRock as being the third biggest holder of its stock as of 1 February, with nearly £400m worth of ordinary shares.
By selling Sainsbury’s stock short, BlackRock is simply hedging its large stock holding against any turbulence in the short term for the supermarket chain.
And that is the key point: I need to consider the timeframe of my investment. In the short term, the stocks on this list might well drop.
That says nothing about the long term, however. Many of the companies on this list could have sunnier days in store for them three to five years out.
Personally though, I wouldn’t buy any of the stocks on this list. That’s because – for some of them – I don’t like their business models. For others, I simply haven’t researched enough to judge.
