How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Farfetch Limited (NYSE:FTCH).
Is FTCH a good stock to buy now? Money managers were getting more optimistic. The number of bullish hedge fund positions increased by 3 lately. Farfetch Limited (NYSE:FTCH) was in 40 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 43. Our calculations also showed that FTCH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 37 hedge funds in our database with FTCH positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Bill Miller of Miller Value Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a look at the latest hedge fund action surrounding Farfetch Limited (NYSE:FTCH).
Do Hedge Funds Think FTCH Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FTCH over the last 21 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Tybourne Capital Management held the most valuable stake in Farfetch Limited (NYSE:FTCH), which was worth $200.3 million at the end of the third quarter. On the second spot was Miller Value Partners which amassed $182 million worth of shares. Citadel Investment Group, Tremblant Capital, and Altimeter Capital Management 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 Miller Value Partners allocated the biggest weight to Farfetch Limited (NYSE:FTCH), around 6.53% of its 13F portfolio. Kayak Investment Partners is also relatively very bullish on the stock, earmarking 6.29 percent of its 13F equity portfolio to FTCH.
With a general bullishness amongst the heavyweights, some big names have jumped into Farfetch Limited (NYSE:FTCH) headfirst. Hound Partners, managed by Jonathan Auerbach, initiated the most outsized position in Farfetch Limited (NYSE:FTCH). Hound Partners had $89.1 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $20.5 million position during the quarter. The other funds with new positions in the stock are Brandon Haley’s Holocene Advisors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Kamyar Khajavi’s MIK Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Farfetch Limited (NYSE:FTCH) but similarly valued. These stocks are GDS Holdings Limited (NASDAQ:GDS), Sociedad Química y Minera de Chile S.A. (NYSE:SQM), The Scotts Miracle-Gro Company (NYSE:SMG), A. O. Smith Corporation (NYSE:AOS), Universal Display Corporation (NASDAQ:OLED), Globe Life Inc. (NYSE:GL), and MGM Growth Properties LLC (NYSE:MGP). This group of stocks’ market caps match FTCH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GDS | 47 | 2723060 | 4 |
| SQM | 12 | 115706 | -2 |
| SMG | 31 | 292026 | 1 |
| AOS | 30 | 435487 | -5 |
| OLED | 20 | 95777 | -5 |
| GL | 31 | 751195 | -2 |
| MGP | 30 | 470854 | -2 |
| Average | 28.7 | 697729 | -1.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.7 hedge funds with bullish positions and the average amount invested in these stocks was $698 million. That figure was $1225 million in FTCH’s case. GDS Holdings Limited (NASDAQ:GDS) is the most popular stock in this table. On the other hand Sociedad Química y Minera de Chile S.A. (NYSE:SQM) is the least popular one with only 12 bullish hedge fund positions. Farfetch Limited (NYSE:FTCH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FTCH is 75.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on FTCH as the stock returned 134.9% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
