Hedge funds circle UK stocks as new PM Andy Burnham pledges 'new economic model'

Hedge fund short-sellers have ramped up bets against U.K.-listed stocks this year, with disclosed positions surging fivefold in the first half of 2026.

Now, investors believe a policy blitz under new Prime Minister Andy Burnham could widen the opportunity set across U.K. equities on both the long and short sides of their portfolios.

Burnham took office this week, promising to lead a "cost-of-living government" focused on tackling rising living expenses. In his inaugural speech on Monday, he pledged a "new economic model" for Britain, including a 10-year plan to reindustrialize the country, with housing costs and utilities affordability emerging as early key pillars of his agenda.

Hedge funds say a domestic policy shake-up could fuel a raft of long and short ideas across U.K. sectors. That includes conviction bets against squeezed sectors and companies, and relative value trades that involve 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 lots of winners and losers, which is good because we want that dispersion," said Alyx Wood, chief investment officer of Kernow Asset Management. "There's an explosive cocktail of really interesting things going on right now. It's pretty fast moving."

Short-selling — a core component of many hedge fund strategies, in which investors bet against a stock or other security intending to profit from its drop in value — has returned with a vengeance to the U.K. market this year.

The number of U.K. companies with aggregate disclosed short positions of at least 5% of their shares surged to 27 in the first half of 2026, according to an analysis by law firm White & Case.

That's a sharp rise from just five in the same period last year.

Vistry Group.

"The U.K.'s leadership change is creating a degree of continued uncertainty and volatility about policy across key sectors including energy, utilities, transport and housebuilding," said Patrick Sarch, White & Case's head of U.K. public M&A.

"As a new policy platform coalesces following new governmental appointments, policies will be proposed, markets will react, and there will be a moderation and prioritization process to determine what is feasible and in what timeframe. We expect to see a relatively protracted period of increased uncertainty for price discovery, creating additional opportunities for short-selling."

Burnham on Tuesday announced plans to remove sales tax from household electricity to provide "breathing space" for customers facing cost-of-living pressures, putting energy costs and utility affordability into sharper political focus, investors say.

Wood said Kernow is bearish on U.K. utilities, highlighting high leverage at individual companies, regulatory, operational and licensing pressures, and the vast investment required in Britain's water and power infrastructure.

"Normally utilities, in dangerous times, are your safe bets. Utilities are probably where we are most negative," Wood told CNBC, citing substandard U.K. water infrastructure, unmet consumer expectations, and regulatory uncertainty that has intensified political scrutiny.

Burnham also wants to build more public housing and pledged Monday to end "rough sleeping" — or unhoused people living on the street — in the U.K. Investors say a policy overhaul aimed at tackling Britain's housing affordability crisis could create winners and losers in the homebuilding sector.

Homebuilder Vistry Group and construction materials company Ibstock were among the most heavily shorted U.K. companies in the first half, White & Case research shows, with aggregate short positions of almost 16% and 13%, respectively.

Ibstock.

Wood said Kernow is short Vistry, noting its debt accumulation, and long Berkeley Group, which he described as a winner because of its stronger balance sheet and better management of planning applications. Others, such as Galliford Try, could benefit from a pick-up in affordable housing construction, he added.

"Most U.K. housebuilders trade at absurd discounts to economic reality. Quite often, near-term profits comfortably exceed the market capitalization," Wood said in a recent note.

Investors have followed Burnham's path to 10 Downing Street with some consternation, amid fears of a leftward lurch by Labour and a more fiscally loose approach to public spending. But his surprise pick for finance minister, John Healey, has gone some way to calming markets, with the former defense secretary broadly regarded as a "safe pair of hands."

White & Case's Sarch said the evolving policy backdrop could sustain relative value opportunities across sectors.

"We expect investors to look beyond company-specific short positions and for there to be considerable portfolio-based long-short strategies, taking both long and short positions across sectors according to which they believe stand to benefit from, and be challenged by, the new policy agenda," he added.

Berkeley Group.

Edgar Allen, founder and chief investment officer of High Ground Investment Management, said housebuilders — along with certain other sectors, such as banks — could face further taxes, although he added that this prospect was already reflected in lower valuations across those sectors.

Allen said Burnham — who replaces Labour Party leader Keir Starmer, who resigned last month — inherits record government spending, high debts, an "unsustainable" deficit and gilt yields "far above anything Liz Truss managed."

"It's easy to see why investor, consumer and business confidence are all at multi-year lows," Allen told CNBC via email.

Still, Allen pointed to signs of improvement, including economic growth and rising productivity, which underpin what he called "real value" in the U.K.

"We expect to see further takeover activity as foreign companies pay record premia for U.K. stocks while still getting bargains," he added.