In a year like no other, short sellers have had to adapt quickly. How well they’ve been able to do that has been the question on many people’s lips and a regular topic of focus in this blog. Now, as the year draws to a close, it’s possible to take a high-level view of exactly just how good or bad 2020 has been for short sellers.
The first thing to say is that, as of the end of November, short positions against the FTSE 350 are in positive territory, cumulatively netting £3.2bn. Compare this to a £918m loss in 2019 and you get a sense not only of the scale of this year’s market volatility, but also of the opportunity. Presented with figures like that, it’s hard to say that short sellers haven’t been able to adapt to this year’s unprecedented market conditions.
However, as regular readers of our blog will know, 2020 has been a rollercoaster year defined by soaring returns in some months and crippling losses in others. Our data shows that short sellers lost £1.8bn in November alone on bets against FTSE 350 companies, the largest loss of 2020 but also the third time monthly losses have exceeded £1bn so far this year. As a benchmark, the three largest loss-making months in 2019 were January ($895m), June (£711m) and December (£485m).
Unsurprisingly, the two most profitable months for short sellers this year were February and March as the impact of the pandemic started to become apparent. Short sellers made £2bn+ in each of these months with March the most profitable of the year at £2.8bn. Once again, a comparison with last year shows the scale of these figures; the most profitable months in 2019 were May (£1.1bn) and August (£930m).
What these figures show us – other than the obvious point that volatility has been rife this year – is that whilst short sellers have been quick to capitalise on an opportunity, they have been slow to respond as the market normalised or rebounded. The two other £1bn+ loss making months referenced earlier came in April and May as government interventions helped to stabilised economies and business models transformed to keep revenue flowing.
Calling the market is, of course, notoriously difficult if not impossible. However, it would appear that this year an ability to do so has been key. Rather than the usual end of year analysis of which stock-specific or sector bets traders got right and wrong, success this year has been defined by a handful of decisions made in three, perhaps four, key months over the course of 2020; when to go in and when to come out. It’s investing 101, but in 2020 it has mattered.
By Peter Hillerberg, co-founder of Ortex Analytics