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 the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns 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 Vera Bradley, Inc. (NASDAQ:VRA).
Vera Bradley, Inc. (NASDAQ:VRA) was in 15 hedge funds’ portfolios at the end of the third quarter of 2019. VRA shareholders have witnessed a decrease in hedge fund interest recently. There were 16 hedge funds in our database with VRA holdings at the end of the previous quarter. Our calculations also showed that VRA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most traders, hedge funds are assumed to be unimportant, old investment vehicles of yesteryear. While there are over 8000 funds trading today, Our researchers choose to focus on the leaders of this group, around 750 funds. These hedge fund managers have their hands on bulk of the hedge fund industry’s total asset base, and by keeping track of their inimitable picks, Insider Monkey has identified a few investment strategies that have historically defeated the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Jack Ripsteen of Potrero Capital Research
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s view the key hedge fund action regarding Vera Bradley, Inc. (NASDAQ:VRA).
How are hedge funds trading Vera Bradley, Inc. (NASDAQ:VRA)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in VRA a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Woodson Capital Management held the most valuable stake in Vera Bradley, Inc. (NASDAQ:VRA), which was worth $12.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $11.6 million worth of shares. AQR Capital Management, Ancora Advisors, and Arrowstreet Capital 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 Woodson Capital Management allocated the biggest weight to Vera Bradley, Inc. (NASDAQ:VRA), around 1.88% of its 13F portfolio. Potrero Capital Research is also relatively very bullish on the stock, setting aside 0.28 percent of its 13F equity portfolio to VRA.
Because Vera Bradley, Inc. (NASDAQ:VRA) has witnessed bearish sentiment from the smart money, we can see that there is a sect of funds who were dropping their entire stakes by the end of the third quarter. It’s worth mentioning that Israel Englander’s Millennium Management dropped the largest position of all the hedgies followed by Insider Monkey, worth close to $2.1 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace, also dumped its stock, about $0.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks similar to Vera Bradley, Inc. (NASDAQ:VRA). These stocks are Consolidated Communications Holdings Inc (NASDAQ:CNSL), Atreca, Inc. (NASDAQ:BCEL), Care.com Inc (NYSE:CRCM), and P.A.M. Transportation Services, Inc. (NASDAQ:PTSI). This group of stocks’ market values are closest to VRA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNSL | 20 | 19802 | 6 |
| BCEL | 6 | 88230 | -3 |
| CRCM | 17 | 115902 | -4 |
| PTSI | 1 | 23187 | 0 |
| Average | 11 | 61780 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $57 million in VRA’s case. Consolidated Communications Holdings Inc (NASDAQ:CNSL) is the most popular stock in this table. On the other hand P.A.M. Transportation Services, Inc. (NASDAQ:PTSI) is the least popular one with only 1 bullish hedge fund positions. Vera Bradley, Inc. (NASDAQ:VRA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on VRA, though not to the same extent, as the stock returned 9.3% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
