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. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Ralph Lauren Corporation (NYSE:RL).
Ralph Lauren Corporation (NYSE:RL) was in 37 hedge funds’ portfolios at the end of December. RL investors should be aware of an increase in enthusiasm from smart money recently. There were 33 hedge funds in our database with RL holdings at the end of the previous quarter. Our calculations also showed that RL 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).
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 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.
Phill Gross of Adage Capital Management
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. With all of this in mind we’re going to check out the recent hedge fund action regarding Ralph Lauren Corporation (NYSE:RL).
Hedge fund activity in Ralph Lauren Corporation (NYSE:RL)
Heading into the first quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RL over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Ralph Lauren Corporation (NYSE:RL), which was worth $464.7 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $170.4 million worth of shares. Arrowstreet Capital, Holocene Advisors, and Marshall Wace LLP 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 MIK Capital allocated the biggest weight to Ralph Lauren Corporation (NYSE:RL), around 6.76% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, designating 2.7 percent of its 13F equity portfolio to RL.
Consequently, specific money managers have jumped into Ralph Lauren Corporation (NYSE:RL) headfirst. MIK Capital, managed by Kamyar Khajavi, established the most outsized position in Ralph Lauren Corporation (NYSE:RL). MIK Capital had $19.4 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also initiated a $7 million position during the quarter. The other funds with brand new RL positions are Robert Pohly’s Samlyn Capital, Brian Scudieri’s Kehrs Ridge Capital, and Sara Nainzadeh’s Centenus Global Management.
Let’s go over hedge fund activity in other stocks similar to Ralph Lauren Corporation (NYSE:RL). We will take a look at Bright Horizons Family Solutions Inc (NYSE:BFAM), Kimco Realty Corp (NYSE:KIM), Store Capital Corporation (NYSE:STOR), and James Hardie Industries plc (NYSE:JHX). This group of stocks’ market values are similar to RL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BFAM | 34 | 343904 | 4 |
| KIM | 16 | 183873 | 4 |
| STOR | 20 | 957353 | 0 |
| JHX | 3 | 9636 | 0 |
| Average | 18.25 | 373692 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $374 million. That figure was $989 million in RL’s case. Bright Horizons Family Solutions Inc (NYSE:BFAM) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Ralph Lauren Corporation (NYSE:RL) is more popular among hedge funds. 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 and still beat the market by 3.2 percentage points. Unfortunately RL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RL were disappointed as the stock returned -38.9% during the first two and a half months of 2020 (through March 16th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.
