It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Coty Inc (NYSE:COTY).
Is Coty Inc (NYSE:COTY) going to take off soon? The smart money is becoming less confident. The number of long hedge fund bets dropped by 5 in recent months. Our calculations also showed that COTY isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to review the new hedge fund action regarding Coty Inc (NYSE:COTY).
Hedge fund activity in Coty Inc (NYSE:COTY)
At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in COTY over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Marc Lisker, Glenn Fuhrman and John Phelan’s MSDC Management has the largest position in Coty Inc (NYSE:COTY), worth close to $44.3 million, comprising 4.8% of its total 13F portfolio. The second most bullish fund manager is Ric Dillon of Diamond Hill Capital, with a $27 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism comprise Ken Griffin’s Citadel Investment Group, James Dinan’s York Capital Management and Peter Muller’s PDT Partners.
Because Coty Inc (NYSE:COTY) has experienced a decline in interest from the smart money, it’s safe to say that there was a specific group of hedge funds that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Guy Shahar’s DSAM Partners cut the biggest stake of the 700 funds watched by Insider Monkey, totaling close to $12.6 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $10.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 5 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Coty Inc (NYSE:COTY) but similarly valued. These stocks are Momo Inc (NASDAQ:MOMO), JetBlue Airways Corporation (NASDAQ:JBLU), CAE, Inc. (NYSE:CAE), and Virtu Financial Inc (NASDAQ:VIRT). All of these stocks’ market caps are similar to COTY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MOMO | 21 | 521092 | -24 |
| JBLU | 31 | 623972 | 1 |
| CAE | 9 | 84941 | -1 |
| VIRT | 17 | 114979 | 3 |
| Average | 19.5 | 336246 | -5.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $336 million. That figure was $132 million in COTY’s case. JetBlue Airways Corporation (NASDAQ:JBLU) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 9 bullish hedge fund positions. Coty Inc (NYSE:COTY) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on COTY as the stock returned 73% and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
