Hedge Funds Ramp Shorts on Manufacturers Over Hormuz Risk

Hedge funds sharply increased short positions in manufacturing in June, according to securities-lending data from Hazeltree covering about 600 asset managers and 16,000 global stocks. Manufacturing became the most heavily shorted sector that month.

Hazeltree found the number of manufacturing companies among the most shorted names rose from May to June. Funds increased bearish bets on firms seen as exposed to cross-border supply flow risks and rising commodity and transport costs.

Targets among the most heavily shorted included companies reliant on imported components, including Canadian Solar, Toyota and Puma. Short interest focused on manufacturers with multi-tier global supply chains that could face delayed deliveries, component shortages or higher replacement costs.

Renewed conflict involving the United States and Iran raised concern over the security of the Strait of Hormuz, a key energy shipping corridor. Potential disruptions in or near the strait could lead to higher raw-material prices, increased insurance premiums for cargoes and higher freight rates if vessels are rerouted.

Freight rates on major trade lanes have risen in recent months as shipping patterns adjusted, and shipping volumes through the Strait of Hormuz fell sharply at the height of the disruption. Those changes have put pressure on logistics networks and lifted transport costs even on routes far from the Middle East.

Hedge funds positioned defensively to reduce exposure to companies viewed as vulnerable to slowing demand, higher energy costs and ongoing supply-chain volatility. Investors will watch Hazeltree’s lending data for shifts in sector allocations and corporate valuations.