Two hedge funds increase short positions in WPP in bet against share price

Two hedge funds are betting against WPP’s shares by taking short positions in the British agency group, regulatory filings show.

AQR Capital Management, a US investment fund, has a short worth 0.6% of WPP's stock market capitalisation.

Marshall Wace, a UK-based fund, has also built up its short position to 0.61%, after previously reducing it earlier this year. 

A hedge fund that shorts a stock price is betting that it will fall further in value.

The hedge funds have taken their short positions following WPP’s half-year results at the start of August when the agency group cut its forecast and said it expected annual revenues would decline by up to 1% in 2024.

AQR Capital Management first revealed a short of 0.5% in WPP on 29 August and then increased its position to 0.6% on 17 September.

Marshall Wace, which was co-founded by Paul Marshall, who recently bought The Spectator, disclosed a 0.5% short in WPP on 26 September and increased it to 0.61% on 3 October.

Hedge funds must disclose any short position worth 0.5% or higher under UK Financial Conduct Authority rules.

WPP’s stock market capitalisation is about £8.4 billion ($11 billion), which makes a 0.6% short worth about £50 million ($65.4 million), based on its current share price.

Marshall Wace had a longstanding short position above 0.5% in WPP from September 2021 until March 2023, and again from September 2023 until July 2024 when its position fell below that level and was no longer visible.

It is thought some other hedge funds have smaller positions in WPP below 0.5% but are not required to disclose it.

A source who is familiar with financial markets said the estimated overall short position in WPP has been slightly higher in the last 12 months than in recent years.

Another source with knowledge of the hedge fund sector pointed out that some funds adopt what they call a “quantitative investment manager” approach where they take short positions in many companies across a range of sectors based on macro-economic reasons and other “signals”, rather than targeting specific companies.

Meanwhile, BlackRock, one of WPP's largest shareholders, has increased its stake above 10%, according to a stock market filing on 24 September. BlackRock previously held about 8%, according to WPP's annual report, published in March.

WPP’s stock price has risen about 3.5% since the start of 2024 and stands at about £7.70 ($10.09) today (8 October).

The stock peaked at £19 in March 2017, when WPP was the world’s most valuable agency group with a £24 billion ($31.4 billion) stock market capitalisation, and Marshall Wace was among the hedge funds to short the stock as it declined during the second half of 2017.

WPP recovered after the pandemic, increasing revenues strongly in 2021 and 2022, but has suffered a slowdown since then and sold some assets.

Both Publicis Groupe and Omnicom have overtaken WPP by size and set share price records this year.

Brian Wieser, founder of Madison & Wall, a research company, and a former WPP executive, said: “I suspect someone shorting WPP or agencies in general starts with a view that agencies are dinosaurs, not cockroaches. But those investors are wrong because agencies are not going anywhere soon.”

In the case of hedge funds shorting WPP, he said: “There are no short-term catalysts that I can see that would make their bets pay off.”

Analysts at Barclays said after WPP's half-year results: “We believe there is deep value in WPP but momentum needs to improve before investors agree with us.”

Barclays added it “still” expects WPP “will turn around its fortunes in the next two to three years” yet “some patience is required” after the agency group cut its guidance.

WPP has had some important account wins, retentions and losses in recent months. 

After losing the Sky media account in the UK and some other European markets at the end of August, WPP picked up Amazon’s media account in EMEA and APAC at the start of September and expanded its overall Unilever relationship following its global media review at the end of September.

WPP declined to comment.