We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Vipshop Holdings Limited (NYSE:VIPS) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Vipshop Holdings Limited (NYSE:VIPS) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that VIPS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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 stocks that are in our short portfolio.
Richard Driehaus of Driehaus Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the key hedge fund action encompassing Vipshop Holdings Limited (NYSE:VIPS).
What have hedge funds been doing with Vipshop Holdings Limited (NYSE:VIPS)?
At Q4’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VIPS over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, GLG Partners, managed by Noam Gottesman, holds the biggest position in Vipshop Holdings Limited (NYSE:VIPS). GLG Partners has a $82.8 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Keywise Capital Management, managed by Fang Zheng, which holds a $71.4 million position; the fund has 23.7% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions consist of Ken Griffin’s Citadel Investment Group, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Steve Cohen’s Point72 Asset Management. In terms of the portfolio weights assigned to each position Keywise Capital Management allocated the biggest weight to Vipshop Holdings Limited (NYSE:VIPS), around 23.66% of its 13F portfolio. Indus Capital is also relatively very bullish on the stock, earmarking 4.58 percent of its 13F equity portfolio to VIPS.
As one would reasonably expect, key hedge funds were breaking ground themselves. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), initiated the most valuable position in Vipshop Holdings Limited (NYSE:VIPS). Schonfeld Strategic Advisors had $23.5 million invested in the company at the end of the quarter. Guy Shahar’s DSAM Partners also made a $11 million investment in the stock during the quarter. The other funds with new positions in the stock are James Chen’s Ovata Capital Management, Richard Driehaus’s Driehaus Capital, and Larry Chen and Terry Zhang’s Tairen Capital.
Let’s go over hedge fund activity in other stocks similar to Vipshop Holdings Limited (NYSE:VIPS). We will take a look at Ceridian HCM Holding Inc. (NYSE:CDAY), Liberty Property Trust (NYSE:LPT), Luckin Coffee Inc. (NASDAQ:LK), and Autohome Inc (NYSE:ATHM). All of these stocks’ market caps resemble VIPS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CDAY | 31 | 1544063 | 1 |
| LPT | 31 | 596139 | -1 |
| LK | 33 | 1149093 | 10 |
| ATHM | 13 | 816653 | 1 |
| Average | 27 | 1026487 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $1026 million. That figure was $403 million in VIPS’s case. Luckin Coffee Inc. (NASDAQ:LK) is the most popular stock in this table. On the other hand Autohome Inc (NYSE:ATHM) is the least popular one with only 13 bullish hedge fund positions. Vipshop Holdings Limited (NYSE:VIPS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on VIPS as the stock returned -1.9% during the same time period and outperformed the market by an even larger margin.
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.
