Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
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 Avnet, Inc. (NYSE:AVT), The Wendy’s Company (NASDAQ:WEN), and Bilibili Inc. (NASDAQ:BILI) to get a better sense of its popularity.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a gander at the fresh hedge fund action surrounding Foot Locker, Inc. (NYSE:FL).
Hedge fund activity in Foot Locker, Inc. (NYSE:FL)
Heading into the fourth quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FL over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Foot Locker, Inc. (NYSE:FL), with a stake worth $191.2 million reported as of the end of September. Trailing AQR Capital Management was Arrowstreet Capital, which amassed a stake valued at $85.7 million. Bridgewater Associates, Balyasny Asset Management, and Kettle Hill Capital Management 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 Kettle Hill Capital Management allocated the biggest weight to Foot Locker, Inc. (NYSE:FL), around 6.92% of its 13F portfolio. Armistice Capital is also relatively very bullish on the stock, earmarking 1.76 percent of its 13F equity portfolio to FL.
Since Foot Locker, Inc. (NYSE:FL) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of money managers who were dropping their positions entirely by the end of the third quarter. It’s worth mentioning that Robert Pohly’s Samlyn Capital dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising close to $14.8 million in call options. Anthony Joseph Vaccarino’s fund, North Fourth Asset Management, also dropped its call options, about $12.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Foot Locker, Inc. (NYSE:FL). We will take a look at Avnet, Inc. (NYSE:AVT), The Wendy’s Company (NASDAQ:WEN), Bilibili Inc. (NASDAQ:BILI), and Grupo Aeroportuario del Sureste (NYSE:ASR). All of these stocks’ market caps resemble FL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AVT | 28 | 678095 | 1 |
| WEN | 34 | 892985 | 10 |
| BILI | 18 | 383762 | -5 |
| ASR | 4 | 38248 | -3 |
| Average | 21 | 498273 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $498 million. That figure was $546 million in FL’s case. The Wendy’s Company (NASDAQ:WEN) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Sureste (NYSE:ASR) is the least popular one with only 4 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately FL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FL were disappointed as the stock returned -22.1% in 2019 (through December 23rd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
