While the Consumer Cyclical sector has produced gains of about 11.52% so far this year, the Apparel Manufacturing industry hasn’t contributed to that uptick, as it has incurred average losses of a little over 4% during the same period. However, investment in the industry can give portfolios much-needed diversification, and contrary to the general trend, there are some clear winners in terms of stock performance this year as well, not to mention some companies with intriguing future prospects. Using our extensive hedge fund data gathered from the latest round of 13F filings, we have extracted the five apparel stocks that the best hedge funds in the world have outfitted their portfolios with. Read on to find out what they are.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 118% over the last 36 months and outperformed the S&P 500 Index by 60 percentage points (see the details here).
5. Under Armour Inc (NYSE:UA)
Investors with Long Positions (as of June 30): 27
Aggregate Value of Investors’ Holdings (as of June 30): $327.3 Million
While the total number of hedge funds with investments in Under Armour Inc (NYSE:UA) increased from 23 at the end of March, the aggregate value of their positions fell from $337.65 million despite an almost 7% rise in the stock’s price. On a year-to-date basis, the $20.61 billion developer of branded performance apparel has seen its stock surge by more than 37%. Donald Chiboucis‘ Columbus Circle Investors is the largest shareholder of Under Armour Inc (NYSE:UA) within our database, holding nearly 1.98 million shares valued at $165.04 million, accounting for more than half of the investment in the stock from all of the funds in our database.
4. Kate Spade & Co (NYSE:KATE)
Investors with Long Positions (as of June 30): 27
Aggregate Value of Investors’ Holdings (as of June 30): $623.71 Million
The $2.24 billion accessories and apparel company operates under two brands, namely Kate Spade New York, catering to women, and Jack Spade, a brand for men. The professional money managers we track lost some collective enthusiasm for Kate Spade & Co (NYSE:KATE) during the June quarter, as 29 funds had investments worth $902.92 million at the end of March. Considering that the stock has plummeted by more than 40% so far this year on the back of a disappointing performance in the first quarter, it is not surprising. However, a turnaround is potentially in the works, as the shares jumped by nearly 13% after the company announced its second quarter financial results on August 5, which showed a double-digit sales growth. Tiger Global Management LLC, which is led by Chase Coleman, upped its stake in Kate Spade & Co (NYSE:KATE) by 74% during the second trimester to 6.2 million shares.
3. Ralph Lauren Corp (NYSE:RL)
Investors with Long Positions (as of June 30): 28
Aggregate Value of Investors’ Holdings (as of June 30): $610.63 Million
Ralph Lauren Corp (NYSE:RL)’s popularity among hedge funds has also dwindled since the end of March, when 35 firms had investments totaling some $670.57 million in the company. The stock has been hammered this year, falling by more than 40%. However, the $9.52 billion clothing and accessories’ manufacturer’s financial results for the first fiscal quarter that ended in June were positive, with Ralph Lauren Corp (NYSE:RL) beating both the top and bottom line estimates of analysts, thus the time might be right to jump into the company at a bargain price. To that point, the stock is currently trading at a forward earnings multiple of just 14. Cliff Asness‘ AQR Capital Management, the top Ralph Lauren Corp (NYSE:RL) stockholder in our database, increased its stake by 183% during the second quarter to 847,400 shares valued at $112.16 million.
2. VF Corp (NYSE:VFC)
Investors with Long Positions (as of June 30): 36
Aggregate Value of Investors’ Holdings (as of June 30): $1.13 Billion
Even though VF Corp (NYSE:VFC)’s stock is down by more than 5% so far this year, the company has attracted significant attention from hedge funds, as only 30 firms had a total investment of $758.09 million in the company at the end of the first quarter. The company operates under three main brands: Northface, Timberland, and Wrangler. Although gross and operating margins dropped slightly in the second quarter on a year-over-year basis, mostly due to adverse currency movements, the company recently revised upwards its adjusted EPS guidance for the current fiscal year. Ric Dillon‘s Diamond Hill Capital, a leading shareholder of VF Corp (NYSE:VFC), increased its holding in the company by 12% during the second quarter to 3.18 million shares.
1. Michael Kors Holdings Ltd (NYSE:KORS)
Investors with Long Positions (as of June 30): 39
Aggregate Value of Investors’ Holdings (as of June 30): $1.03 Billion
The $8.41 billion luxury brand company has seen its stock price slump by more than 43% year-to-date, while hedge fund interest dropped from 40 firms with total holdings valued at $1.90 billion at the end of March. Given Michael Kors Holdings Ltd (NYSE:KORS)’s low forward earnings multiple of 9.43 and its management’s plan to expand its base in Europe and Japan, the stock has considerable upside potential. Ricky Sandler‘s Eminence Capital is particularly bullish on Michael Kors Holdings Ltd (NYSE:KORS), having raised its stake by 240% in the June trimester to more than 4.54 million shares.
Disclosure: None
