Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Tapestry, Inc. (NYSE:TPR) changed recently.
Tapestry, Inc. (NYSE:TPR) has experienced a decrease in activity from the world’s largest hedge funds of late. TPR was in 24 hedge funds’ portfolios at the end of September. There were 32 hedge funds in our database with TPR positions at the end of the previous quarter. Our calculations also showed that TPR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s view the new hedge fund action encompassing Tapestry, Inc. (NYSE:TPR).
How are hedge funds trading Tapestry, Inc. (NYSE:TPR)?
At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the second quarter of 2019. On the other hand, there were a total of 33 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.
More specifically, Two Sigma Advisors was the largest shareholder of Tapestry, Inc. (NYSE:TPR), with a stake worth $82.8 million reported as of the end of September. Trailing Two Sigma Advisors was Alyeska Investment Group, which amassed a stake valued at $48.5 million. Citadel Investment Group, D E Shaw, and Samlyn Capital 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 Raging Capital Management allocated the biggest weight to Tapestry, Inc. (NYSE:TPR), around 2.71% of its portfolio. Samlyn Capital is also relatively very bullish on the stock, setting aside 0.88 percent of its 13F equity portfolio to TPR.
Because Tapestry, Inc. (NYSE:TPR) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of fund managers who sold off their full holdings by the end of the third quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dumped the largest stake of the 750 funds followed by Insider Monkey, totaling about $23.7 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $20 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 8 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to Tapestry, Inc. (NYSE:TPR). We will take a look at James Hardie Industries plc (NYSE:JHX), BRF SA (NYSE:BRFS), Bio-Techne Corporation (NASDAQ:TECH), and Peloton Interactive, Inc. (NASDAQ:PTON). All of these stocks’ market caps are closest to TPR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JHX | 2 | 6880 | 0 |
| BRFS | 14 | 116226 | 1 |
| TECH | 19 | 317814 | -5 |
| PTON | 27 | 450294 | 27 |
| Average | 15.5 | 222804 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $223 million. That figure was $385 million in TPR’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 2 bullish hedge fund positions. Tapestry, Inc. (NYSE:TPR) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 3.2% during the fourth quarter (through the end of November) 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.
Disclosure: None. This article was originally published at Insider Monkey.
