We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Stitch Fix, Inc. (NASDAQ:SFIX).
Stitch Fix, Inc. (NASDAQ:SFIX) investors should pay attention to an increase in hedge fund interest recently. SFIX was in 21 hedge funds’ portfolios at the end of September. There were 20 hedge funds in our database with SFIX holdings at the end of the previous quarter. Our calculations also showed that SFIX isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s take a look at the recent hedge fund action regarding Stitch Fix, Inc. (NASDAQ:SFIX).
How are hedge funds trading Stitch Fix, Inc. (NASDAQ:SFIX)?
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in SFIX heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Hitchwood Capital Management was the largest shareholder of Stitch Fix, Inc. (NASDAQ:SFIX), with a stake worth $61.3 million reported as of the end of September. Trailing Hitchwood Capital Management was Steadfast Capital Management, which amassed a stake valued at $54.7 million. Renaissance Technologies, Light Street Capital, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key money managers were breaking ground themselves. Renaissance Technologies, managed by Jim Simons, created the most valuable position in Stitch Fix, Inc. (NASDAQ:SFIX). Renaissance Technologies had $50 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $5.6 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Brad Farber’s Atika Capital, and Richard Driehaus’s Driehaus Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Stitch Fix, Inc. (NASDAQ:SFIX) but similarly valued. These stocks are Ingevity Corporation (NYSE:NGVT), Turquoise Hill Resources Ltd (NYSE:TRQ), MongoDB, Inc. (NASDAQ:MDB), and Perspecta Inc. (NYSE:PRSP). This group of stocks’ market values match SFIX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NGVT | 19 | 148360 | 2 |
| TRQ | 18 | 1011545 | 0 |
| MDB | 21 | 689313 | 2 |
| PRSP | 42 | 731268 | -8 |
| Average | 25 | 645122 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $645 million. That figure was $279 million in SFIX’s case. Perspecta Inc. (NYSE:PRSP) is the most popular stock in this table. On the other hand Turquoise Hill Resources Ltd (NYSE:TRQ) is the least popular one with only 18 bullish hedge fund positions. Stitch Fix, Inc. (NASDAQ:SFIX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PRSP might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
