Hedge funds are betting big against stocks that would benefit from the economy reopening

Published Thu, Aug 13 20201:41 PM EDTUpdated Thu, Aug 13 20201:43 PM EDT

(This story is for CNBC Pro subscribers only.) Even as the S & P 500 is just inches away from reclaiming its record high, many hedge funds are still not convinced that the recovery is for real as they bet heavily against classic reopening stocks such as cruises and airlines. Bank of America screened S & P 500 stocks with the most short interest, namely the number of shorted shares divided by the number of shares outstanding. The bank estimated that 85% of total short interest in stocks is from hedge funds. Shorting is a sophisticated trading tactic where the investor sells borrowed shares in the hope of buying them back at a lower price. The investor profits when the stock drops. A handful of major airline and cruise line stocks made the top 20 list, meaning that hedge funds still hold sizable short positions in the travel industry hammered by the coronavirus pandemic. American Airlines has the most short interest among the S & P 500 stocks at 29.5% of total shares outstanding, according to Bank of America. The carrier posted a net loss of $2.1 billion in the second quarter, with revenue dropping 86% compared to a year earlier, due to the devastated travel demand. Shares of American Airlines are still down more than 50% this year after rebounding 18% in the past month. United Airlines is also one of the most shorted stocks in the broad equity benchmark. The airline, which had similar impact from the pandemic, saw its stock tank more than 57% in 2020. Meanwhile, hedge funds are still betting big against Carnival, Norwegian Cruise Line and Royal Caribbean Cruises , according to Bank of America data. Cruise stocks were hit hard this year as the industry suspended global operations about five months ago after several outbreaks of the coronavirus left passengers and crew under quarantine aboard ships. Norwegian and Carnival shares have lost about 70% each year to date, while Royal's stock has lost over half its value. Royal Caribbean executive earlier this week touted "remarkable" demand as the company has seen the surge in booking. But some Wall Street analysts have cast doubts on the comments and still believe the road to recovery remains long and bumpy. Another classic reopening trade Kohl's is also a popular short bet among hedge funds. The stock is still down 55% this year as consumers remain wary of returning to bricks-and-mortar retail.

The Italian cruise ship Costa Atlantica is docked at a port in Japan's Nagasaki, where crew members have tested positive for coronavirus.

STR / JIJI PRESS / AFP/ Getty Images

(This story is for CNBC Pro subscribers only.)

Even as the S&P 500 is just inches away from reclaiming its record high, many hedge funds are still not convinced that the recovery is for real as they bet heavily against classic reopening stocks such as cruises and airlines.