Hedge fund short sellers have increased bets against UK-listed stocks this year, with exposed positions quintupling in the first half of 2026.
Now, investors believe that the repeal of the policy under the new Prime Minister Andy Burnham can extend the opportunity set for all UK equities on both the long and short sides of their portfolios.
Burnham took office this week, pledging to lead a “cost of living government” focused on tackling the rising cost of living. In his opening speech on Monday, he promised a “new economic model” for Britain, including a 10-year plan to reinvent the country, with housing affordability and access to resources as key pillars of his agenda.
Hedge funds say changes in domestic policy could fuel a mix of long and short views across UK sectors. That includes conviction bets against stressed sectors and companies, and relative value trading that involves buying companies expected to benefit from Burnham’s policies while shorting weaker businesses in the same industry.
“Where we are today is that there are many winners and losers, which is good because we want that dispersal,” said Alyx Wood, chief investment officer at Kernow Asset Management. “There’s an explosive cocktail of really interesting things going on right now. It’s moving fast.”
Resources under stress
Short selling – a key part of many hedge fund strategies, where investors bet on a stock or other security that they intend to profit from falling in value – has returned with a vengeance to the UK market this year.
The number of UK corporates that disclosed short positions of at least 5% of their shares rose to 27 in the first half of 2026, according to analysis by law firm White & Case.
That’s up significantly from five at the same time last year.
The Vistry Group.
“The change in UK leadership is creating a level of ongoing uncertainty and policy volatility across key sectors including energy, utilities, transport and housing,” said Patrick Sarch, White & Case’s head of UK public M&A.
“As the new policy arena comes together following new government appointments, policies will be proposed, markets will react, and there will be a process of balancing and prioritizing to decide what can happen and when. We expect to see more time for increased uncertainty in price discovery, which creates more opportunities for short selling.”
Burnham on Tuesday announced plans to remove sales tax on domestic electricity to provide “breathing space” for customers facing cost-of-living pressures, putting energy costs and resource availability in the political spotlight, investors said.
Wood said Kernow had strengths in UK services, highlighting the high quality of individual companies, regulatory, operational and licensing pressures, and the huge investment required in Britain’s water and energy infrastructure.
“Typically utilities, in dangerous times, are your safest bet. Utilities are probably the worst,” Wood told CNBC, citing the UK’s poor water infrastructure, unmet consumer expectations, and regulatory uncertainty that have fueled political scrutiny.
Housing policy creates winners and losers
Burnham also wants to build more social housing and promised on Monday to end “rough sleeping” – or homeless people living on the streets – in the UK Investors say a policy overhaul aimed at tackling Britain’s housing affordability crisis could create winners and losers in the housing sector.
Home builder The Vistry Group and a construction materials company Ibstock were among the most shorted UK companies in the first half, White & Case research shows, with combined short positions of around 16% and 13%, respectively.
Ibstock.
Wood said that Kernow is short Vistry, marking the collection of its debts, and long The Berkeley teamdescribed it as a winner due to its powerful balance and better handling of programming applications. Some, like Galliford Trycan benefit from the acquisition of affordable housing, he added.
“The majority of UK housebuilders are trading at absurd discounts to deal with economic reality. Often, the near term profit comfortably exceeds the market capitalization,” Wood said in a recent letter.
Investors have followed Burnham’s path to 10 Downing Street with some consternation, amid fears of a left-wing crackdown by Labor and a lax approach to public spending. But his surprise choice of finance minister, John Healey, has gone some way to calming markets, with the former defense secretary regarded as “safe hands.”
White & Case’s Sarch said the improving policy environment could preserve opportunities for a limited number of sectors.
“We expect investors to look beyond the short positions of a particular company and into short portfolio-based strategies, take long and short positions in all sectors that they believe will benefit, and be challenged by the new policy agenda,” he added.
The Berkeley group.
Edgar Allen, founder and chief investment officer of High Ground Investment Management, said that real estate developers – and other sectors, such as banks – could face higher taxes, although he added that this prospect is already reflected in lower prices in all these sectors.
Allen said Burnham – who replaces Labor Party leader Keir Starmer, who resigned last month – was achieving record government spending, huge debt, “uninviting” deficits and profits “well above anything Liz Truss has managed.”
“It’s easy to see why investor, consumer and business confidence are all at multi-year lows,” Allen told CNBC in an email.
Still, Allen pointed to signs of improvement, including economic growth and rising productivity, supporting what he called “real value” in the UK.
“We expect to see more activity as foreign companies pay record prices for UK shares while still securing deals,” he added.
