Was The Smart Money Right About Burlington Stores Inc (BURL)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Burlington Stores Inc (NYSE:BURL).

Is Burlington Stores Inc (NYSE:BURL) a great investment today? The best stock pickers were in a bearish mood. The number of long hedge fund bets shrunk by 2 in recent months. Burlington Stores Inc (NYSE:BURL) was in 38 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 40. Our calculations also showed that BURL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 40 hedge funds in our database with BURL positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Robert Pohly of Samlyn 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 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind we’re going to review the latest hedge fund action encompassing Burlington Stores Inc (NYSE:BURL).

Hedge fund activity in Burlington Stores Inc (NYSE:BURL)

At the end of June, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards BURL over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Among these funds, Adage Capital Management held the most valuable stake in Burlington Stores Inc (NYSE:BURL), which was worth $462.2 million at the end of the third quarter. On the second spot was Third Point which amassed $275.7 million worth of shares. Samlyn Capital, Dorsal Capital Management, and Melvin 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 Dorsal Capital Management allocated the biggest weight to Burlington Stores Inc (NYSE:BURL), around 6.27% of its 13F portfolio. Third Point is also relatively very bullish on the stock, designating 3.77 percent of its 13F equity portfolio to BURL.

Due to the fact that Burlington Stores Inc (NYSE:BURL) has faced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedgies who sold off their full holdings in the second quarter. It’s worth mentioning that Renaissance Technologies cut the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling about $30.5 million in stock. James Parsons’s fund, Junto Capital Management, also said goodbye to its stock, about $11.9 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Burlington Stores Inc (NYSE:BURL). These stocks are Synchrony Financial (NYSE:SYF), FMC Corporation (NYSE:FMC), Galapagos NV (NASDAQ:GLPG), Martin Marietta Materials, Inc. (NYSE:MLM), Carnival Corporation & Plc (NYSE:CCL), Zillow Group Inc (NASDAQ:Z), and Markel Corporation (NYSE:MKL). This group of stocks’ market valuations match BURL’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.3 hedge funds with bullish positions and the average amount invested in these stocks was $1066 million. That figure was $1475 million in BURL’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand Galapagos NV (NASDAQ:GLPG) is the least popular one with only 13 bullish hedge fund positions. Burlington Stores Inc (NYSE:BURL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BURL is 58.7. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and surpassed the market again by 20.1 percentage points. Unfortunately BURL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); BURL investors were disappointed as the stock returned -1.7% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.