Foot Locker, Inc. (FL): Are Hedge Funds Right About This Stock?

Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. Between November 1, 2014 and October 30 of this year, less than 49% of the stocks in the S&P 500 beat the market. However, hedge funds’ top 30 stock picks from the index had a much higher success rate than this, at 63%. The returns from these 30 stocks also easily bested the broader market, at 9.5% compared to 5.2%, despite there being a few duds in there like Micron and Anadarko (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.

Hedge fund interest in Foot Locker, Inc. (NYSE:FL) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare FL to other stocks, including H&R Block, Inc. (NYSE:HRB), CGI Group Inc. (USA) (NYSE:GIB), and Autodesk, Inc. (NASDAQ:ADSK) to get a better sense of its popularity.

According to most investors, hedge funds are perceived as underperforming, outdated investment vehicles of years past. While there are greater than 8000 funds in operation at present, Our experts choose to focus on the aristocrats of this group, approximately 700 funds. These investment experts command bulk of all hedge funds’ total asset base, and by shadowing their highest performing picks, Insider Monkey has unearthed numerous investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, let’s view the fresh action surrounding Foot Locker, Inc. (NYSE:FL).

Hedge fund activity in Foot Locker, Inc. (NYSE:FL)

Heading into Q4, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the previous quarter. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Steven Richman’s East Side Capital (RR Partners) has the most valuable position in Foot Locker, Inc. (NYSE:FL), worth close to $195.2 million, comprising 8.4% of its total 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, run by Cliff Asness, which holds a $178 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other peers that hold long positions consist of David Harding’s Winton Capital Management, Joel Greenblatt’s Gotham Asset Management and Robert B. Gillam’s McKinley Capital Management.

Seeing as Foot Locker, Inc. (NYSE:FL) has experienced falling interest from the aggregate hedge fund industry, we can see that there exists a select few fund managers that elected to cut their entire stakes last quarter. It’s worth mentioning that John Armitage’s Egerton Capital Limited cut the biggest investment of the 700 funds followed by Insider Monkey, totaling close to $72.3 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund said goodbye to about $56.7 million worth of FL shares. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Foot Locker, Inc. (NYSE:FL) but similarly valued. We will take a look at H&R Block, Inc. (NYSE:HRB), CGI Group Inc. (USA) (NYSE:GIB), Autodesk, Inc. (NASDAQ:ADSK), and Philippine Long Distance Telephone (ADR) (NYSE:PHI). This group of stocks’ market caps are closest to FL’s market cap.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $843 million. In the case of FL, that figure was $670 million. H&R Block, Inc. (NYSE:HRB) is the most popular stock in this table, whereas Philippine Long Distance Telephone (ADR) (NYSE:PHI) is the laggard with only 7 bullish hedge fund positions. Foot Locker, Inc. (NYSE:FL) is not the most popular stock in this group, but hedge fund interest is still above average. Althgough this is a slightly positive signal, we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HRB might be a better candidate to consider a long position.