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One thing I like to keep an eye on as part of my investment research is short selling data. This data, which is provided by the UK Financial Conduct Authority (FCA), shows what stocks hedge funds are betting against. Here, I’m going to highlight the three most shorted UK shares right now. Clearly, hedge funds expect these shares to tank.

First up is grocery delivery company Ocado (LSE: OCDO). It’s currently the most shorted stock in the UK with short interest of around 6.1%, according to the FCA.

As to why hedge funds are targeting the company, I think it’s probably related to its ballooning losses.

Last month, the group posted a larger-than-expected loss for FY2022 (£501m versus the consensus forecast of £399m). And it’s expected to post further large losses this financial year and next.

These losses are one reason I’ve recently avoided the stock. In the current environment, investors don’t have a lot of patience for unprofitable companies like Ocado.

I still think the stock has long-term potential however, as the group has some very interesting warehouse automation technology. The company just needs to work out how to become profitable.

The second most shorted stock on the London Stock Exchange right now, according to the FCA, is green hydrogen company ITM Power (LSE: ITM). It has short interest of 5.8%.

The high level of negative interest here really doesn’t surprise me. This is a company that has a history of disappointing investors in terms of revenue growth. It’s also a company that’s losing money hand over fist.

On top of this, it has a very high valuation (the price-to-sales ratio here is about 82). Putting all this together, it’s a short sellers’ dream.

It’s worth pointing out that ITM Power does have a few positive things going for it. It operates in a high-growth market and it has the backing of some major players in the energy industry.

However, from an investment perspective, it’s a risky bet. And that’s why the short sellers are targeting it.

Finally, we have online fashion retailer ASOS (LSE: ASC). It’s currently the third most shorted stock in the UK, with short interest of 5.7%.

This is a stock I own, so the high level of short interest pains me. I can understand why hedge funds are betting against it though. In recent years, ASOS’ financial performance has been poor. Top-line growth has slowed and profits have disappeared.

I remain convinced the company has the ability to turn things around however. This is a company that’s generating sales of around £4bn per year now. And it should enjoy tailwinds from the growth of the online shopping industry in the years ahead.

So I’m going to hold on to my ASOS shares for now, despite this negative attention.

The post Hedge funds expect these 3 UK shares to tank appeared first on The Motley Fool UK.

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Edward Sheldon has positions in Asos Plc. The Motley Fool UK has recommended Ocado Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.