Was The Smart Money Right About Farfetch Limited (FTCH)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Farfetch Limited (NYSE:FTCH) and determine whether hedge funds skillfully traded this stock.

Is Farfetch Limited (NYSE:FTCH) going to take off soon? Prominent investors were turning less bullish. The number of bullish hedge fund bets dropped by 12 in recent months. Farfetch Limited (NYSE:FTCH) was in 51 hedge funds’ portfolios at the end of September. The all time high for this statistic is 63. Our calculations also showed that FTCH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. With all of this in mind let’s take a glance at the key hedge fund action encompassing Farfetch Limited (NYSE:FTCH).

Daniel Sundheim of D1 Capital Partners

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

At the end of the third quarter, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the second quarter of 2021. On the other hand, there were a total of 40 hedge funds with a bullish position in FTCH a year ago. 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, Lone Pine Capital held the most valuable stake in Farfetch Limited (NYSE:FTCH), which was worth $860 million at the end of the third quarter. On the second spot was D1 Capital Partners which amassed $535 million worth of shares. Viking Global, Altimeter Capital Management, and Tremblant 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 Cheyne Capital allocated the biggest weight to Farfetch Limited (NYSE:FTCH), around 6.47% of its 13F portfolio. StackLine Partners is also relatively very bullish on the stock, setting aside 4.52 percent of its 13F equity portfolio to FTCH.

Judging by the fact that Farfetch Limited (NYSE:FTCH) has witnessed a decline in interest from the smart money, logic holds that there lies a certain “tier” of hedge funds who sold off their positions entirely heading into Q4. It’s worth mentioning that Gil Simon’s SoMa Equity Partners dropped the largest stake of all the hedgies followed by Insider Monkey, totaling an estimated $201.4 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund cut about $193.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 12 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Farfetch Limited (NYSE:FTCH) but similarly valued. We will take a look at American Airlines Group Inc (NASDAQ:AAL), Teck Resources Ltd (NYSE:TECK), Open Text Corporation (NASDAQ:OTEX), Crown Holdings, Inc. (NYSE:CCK), Athene Holding Ltd. (NYSE:ATH), Icahn Enterprises LP (NASDAQ:IEP), and CBOE Global Markets Inc (NASDAQ:CBOE). This group of stocks’ market caps match FTCH’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $2789 million. That figure was $3259 million in FTCH’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 4 bullish hedge fund positions. Farfetch Limited (NYSE:FTCH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FTCH is 66.2. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, FTCH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on FTCH were disappointed as the stock returned -42.1% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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