Ralph Lauren Corporation (RL) Fell Out Of Favor With Hedge Funds

In this article we are going to use hedge fund sentiment as a tool and determine whether Ralph Lauren Corporation (NYSE:RL) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Ralph Lauren Corporation (NYSE:RL) has seen a decrease in activity from the world’s largest hedge funds lately. Ralph Lauren Corporation (NYSE:RL) was in 32 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 39. Our calculations also showed that RL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 79 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.

Phillip Gross of Adage Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s take a look at the new hedge fund action surrounding Ralph Lauren Corporation (NYSE:RL).

Do Hedge Funds Think RL Is A Good Stock To Buy Now?

At Q2’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards RL over the last 24 quarters. So, let’s examine 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 Ralph Lauren Corporation (NYSE:RL), which was worth $111.8 million at the end of the second quarter. On the second spot was Scopus Asset Management which amassed $90.9 million worth of shares. Royce & Associates, Millennium Management, and Two Sigma Advisors 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 Hickory Lane Capital Management allocated the biggest weight to Ralph Lauren Corporation (NYSE:RL), around 2.3% of its 13F portfolio. Hickory Lane Capital Management is also relatively very bullish on the stock, designating 1.93 percent of its 13F equity portfolio to RL.

Judging by the fact that Ralph Lauren Corporation (NYSE:RL) has faced a decline in interest from the smart money, we can see that there is a sect of funds that elected to cut their positions entirely last quarter. It’s worth mentioning that Steven Boyd’s Armistice Capital dropped the biggest investment of the 750 funds monitored by Insider Monkey, comprising about $35.8 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its stock, about $30.6 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Ralph Lauren Corporation (NYSE:RL). We will take a look at Capri Holdings Limited (NYSE:CPRI), Jabil Inc. (NYSE:JBL), Ares Capital Corporation (NASDAQ:ARCC), Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR), Skillz Inc. (NYSE:SKLZ), Kohl’s Corporation (NYSE:KSS), and Oshkosh Corporation (NYSE:OSK). All of these stocks’ market caps resemble RL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.6 hedge funds with bullish positions and the average amount invested in these stocks was $649 million. That figure was $691 million in RL’s case. Capri Holdings Limited (NYSE:CPRI) is the most popular stock in this table. On the other hand Ares Capital Corporation (NASDAQ:ARCC) is the least popular one with only 12 bullish hedge fund positions. Ralph Lauren Corporation (NYSE:RL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RL is 58.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Hedge funds were also right about betting on RL as the stock returned 1.4% since the end of Q2 (through 10/15) 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.