Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Under Armour Inc (NYSE:UA).
Under Armour Inc (NYSE:UA) investors should be aware of a decrease in hedge fund interest recently. Our calculations also showed that UA isn’t among the 30 most popular stocks among hedge funds.
To most stock holders, hedge funds are assumed to be unimportant, old investment vehicles of the past. While there are more than 8000 funds trading at the moment, We look at the upper echelon of this club, approximately 750 funds. Most estimates calculate that this group of people administer bulk of all hedge funds’ total asset base, and by tracking their best investments, Insider Monkey has found a number of investment strategies that have historically beaten the market. Insider Monkey’s flagship hedge fund strategy surpassed the S&P 500 index by nearly 5 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.
We’re going to take a glance at the latest hedge fund action encompassing Under Armour Inc (NYSE:UA).
How have hedgies been trading Under Armour Inc (NYSE:UA)?
Heading into the first quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in UA a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Adage Capital Management held the most valuable stake in Under Armour Inc (NYSE:UA), which was worth $201.9 million at the end of the third quarter. On the second spot was Bares Capital Management which amassed $172.5 million worth of shares. Moreover, Alyeska Investment Group, D E Shaw, and Citadel Investment Group were also bullish on Under Armour Inc (NYSE:UA), allocating a large percentage of their portfolios to this stock.
Seeing as Under Armour Inc (NYSE:UA) has faced a decline in interest from hedge fund managers, it’s easy to see that there was a specific group of hedgies who sold off their full holdings by the end of the third quarter. Interestingly, Alexander Mitchell’s Scopus Asset Management said goodbye to the largest stake of the 700 funds monitored by Insider Monkey, valued at close to $27.6 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund sold off about $25 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Under Armour Inc (NYSE:UA). We will take a look at Israel Chemicals Ltd. (NYSE:ICL), XPO Logistics Inc (NYSE:XPO), BorgWarner Inc. (NYSE:BWA), and Tyler Technologies, Inc. (NYSE:TYL). This group of stocks’ market values are closest to UA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ICL | 5 | 53471 | -3 |
| XPO | 44 | 2449139 | 0 |
| BWA | 22 | 579935 | 0 |
| TYL | 24 | 714336 | 2 |
| Average | 23.75 | 949220 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $949 million. That figure was $607 million in UA’s case. XPO Logistics Inc (NYSE:XPO) is the most popular stock in this table. On the other hand Israel Chemicals Ltd. (NYSE:ICL) is the least popular one with only 5 bullish hedge fund positions. Under Armour Inc (NYSE:UA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on UA as the stock returned 20.6% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
