19/10/2010 Author: Shannon Hawthorne

Hedge funds go short on defence firms

Hedge funds are becoming increasingly bearish on UK specialist defence firms following the news of cuts in defence spending, research from Data Explorers has revealed.

The UK recently announced plans to reduce defence expenditure by 7%-8%, resulting in the shorting of a number of specialised firm which sell military related goods to the Government such as FLIR, Aeorvir, Taser and Qinetiq.

However, short sellers remain relatively inactive in bigger companies such as BAE, Lockheed Martin and Cobham due to the long term nature of the contracts, despite the fact that that the UK government would like BAE to review existing contracts.

Uncertainty with regard to the US defence budget for 2011 has also meant many that hedge fund and other short sellers are largely negative on the outlook for certain smaller defence specialists. A prime example of such firms is FLIR Systems, in which short interest has just hit a one-year high at 11% of the company.