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 Tapestry, Inc. (NYSE:TPR).
Tapestry, Inc. (NYSE:TPR) was in 32 hedge funds’ portfolios at the end of the second quarter of 2019. TPR investors should be aware of an increase in support from the world’s most elite money managers recently. There were 29 hedge funds in our database with TPR holdings at the end of the previous quarter. Our calculations also showed that TPR isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the recent hedge fund action regarding Tapestry, Inc. (NYSE:TPR).
Hedge fund activity in Tapestry, Inc. (NYSE:TPR)
Heading into the third quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in TPR a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Two Sigma Advisors, managed by John Overdeck and David Siegel, holds the biggest position in Tapestry, Inc. (NYSE:TPR). Two Sigma Advisors has a $118.4 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is D. E. Shaw of D E Shaw, with a $81.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism comprise Israel Englander’s Millennium Management, Anand Parekh’s Alyeska Investment Group and Ken Griffin’s Citadel Investment Group.
Now, key hedge funds were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, initiated the biggest position in Tapestry, Inc. (NYSE:TPR). Alyeska Investment Group had $35.4 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $9.9 million investment in the stock during the quarter. The following funds were also among the new TPR investors: Mike Vranos’s Ellington, Steven Boyd’s Armistice Capital, and Sara Nainzadeh’s Centenus Global Management.
Let’s also examine hedge fund activity in other stocks similar to Tapestry, Inc. (NYSE:TPR). These stocks are Advanced Semiconductor Engineering (NYSE:ASX), Coty Inc (NYSE:COTY), Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), and NICE Ltd. (NASDAQ:NICE). This group of stocks’ market valuations match TPR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ASX | 8 | 184028 | -1 |
| COTY | 19 | 149821 | -5 |
| AVAL | 7 | 19032 | -1 |
| NICE | 19 | 381690 | 2 |
| Average | 13.25 | 183643 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $533 million in TPR’s case. Coty Inc (NYSE:COTY) is the most popular stock in this table. On the other hand Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Tapestry, Inc. (NYSE:TPR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TPR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TPR were disappointed as the stock returned -16.6% during the third quarter 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
