Do Hedge Funds Love Stitch Fix, Inc. (SFIX)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Stitch Fix, Inc. (NASDAQ:SFIX).

Is Stitch Fix, Inc. (NASDAQ:SFIX) a great investment now? The smart money was cutting their exposure. The number of bullish hedge fund bets retreated by 5 recently. Stitch Fix, Inc. (NASDAQ:SFIX) was in 30 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 35. Our calculations also showed that SFIX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 35 hedge funds in our database with SFIX holdings at the end of June.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a peek at the recent hedge fund action regarding Stitch Fix, Inc. (NASDAQ:SFIX).

Bill Miller of Miller Value Partners

Do Hedge Funds Think SFIX Is A Good Stock To Buy Now?

At third quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the second quarter of 2021. On the other hand, there were a total of 25 hedge funds with a bullish position in SFIX a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Slate Path Capital was the largest shareholder of Stitch Fix, Inc. (NASDAQ:SFIX), with a stake worth $119.1 million reported as of the end of September. Trailing Slate Path Capital was D E Shaw, which amassed a stake valued at $85.8 million. Coatue Management, Miller Value Partners, and Marshall Wace LLP were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Marathon Partners allocated the biggest weight to Stitch Fix, Inc. (NASDAQ:SFIX), around 12.59% of its 13F portfolio. Slate Path Capital is also relatively very bullish on the stock, setting aside 5.44 percent of its 13F equity portfolio to SFIX.

Because Stitch Fix, Inc. (NASDAQ:SFIX) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few fund managers that decided to sell off their entire stakes heading into Q4. Intriguingly, Lee Ainslie’s Maverick Capital dumped the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth about $2.8 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dropped about $1.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Stitch Fix, Inc. (NASDAQ:SFIX) but similarly valued. These stocks are Carter’s, Inc. (NYSE:CRI), Insperity Inc (NYSE:NSP), Cerevel Therapeutics Holdings, Inc. (NASDAQ:CERE), Companhia Energética de Minas Gerais (NYSE:CIG), FireEye Inc (NASDAQ:FEYE), Quaker Chemical Corp (NYSE:KWR), and Kemper Corporation (NYSE:KMPR). This group of stocks’ market values are closest to SFIX’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $189 million. That figure was $601 million in SFIX’s case. Carter’s, Inc. (NYSE:CRI) is the most popular stock in this table. On the other hand Kemper Corporation (NYSE:KMPR) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Stitch Fix, Inc. (NASDAQ:SFIX) is more popular among hedge funds. Our overall hedge fund sentiment score for SFIX is 75.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Unfortunately SFIX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on SFIX were disappointed as the stock returned -37.7% since the end of the third quarter (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.