The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Foot Locker, Inc. (NYSE:FL) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Foot Locker, Inc. (NYSE:FL) was in 29 hedge funds' portfolios at the end of June. The all time high for this statistics is 38. FL shareholders have witnessed an increase in hedge fund sentiment of late. There were 21 hedge funds in our database with FL holdings at the end of March. Our calculations also showed that FL 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). Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Cliff Asness of AQR Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we're going to take a peek at the fresh hedge fund action encompassing Foot Locker, Inc. (NYSE:FL).
Hedge fund activity in Foot Locker, Inc. (NYSE:FL)
At the end of June, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from the first quarter of 2020. By comparison, 32 hedge funds held shares or bullish call options in FL a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Foot Locker, Inc. (NYSE:FL), with a stake worth $92 million reported as of the end of September. Trailing Citadel Investment Group was Balyasny Asset Management, which amassed a stake valued at $38.9 million. AQR Capital Management, Ariel Investments, and Holocene 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 Scion Asset Management allocated the biggest weight to Foot Locker, Inc. (NYSE:FL), around 1.66% of its 13F portfolio. Armistice Capital is also relatively very bullish on the stock, designating 1.04 percent of its 13F equity portfolio to FL.
As one would reasonably expect, some big names have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, created the largest position in Foot Locker, Inc. (NYSE:FL). Balyasny Asset Management had $38.9 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also initiated a $29.4 million position during the quarter. The other funds with new positions in the stock are Steven Boyd's Armistice Capital, Joe DiMenna's ZWEIG DIMENNA PARTNERS, and Scott Wallace's Wallace Capital Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Foot Locker, Inc. (NYSE:FL) but similarly valued. These stocks are NovaGold Resources Inc. (NYSE:NG), UFP Industries, Inc. (NASDAQ:UFPI), Synovus Financial Corp. (NYSE:SNV), J2 Global Inc (NASDAQ:JCOM), Sprouts Farmers Market Inc (NASDAQ:SFM), Omnicell, Inc. (NASDAQ:OMCL), and Werner Enterprises, Inc. (NASDAQ:WERN). This group of stocks' market values are closest to FL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NG,23,375744,4 UFPI,18,68772,1 SNV,27,185112,-6 JCOM,30,203643,9 SFM,25,467061,-5 OMCL,16,61075,-1 WERN,32,389115,15 Average,24.4,250075,2.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $310 million in FL's case. Werner Enterprises, Inc. (NASDAQ:WERN) is the most popular stock in this table. On the other hand Omnicell, Inc. (NASDAQ:OMCL) is the least popular one with only 16 bullish hedge fund positions. Foot Locker, Inc. (NYSE:FL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FL is 73.5. 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 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on FL as the stock returned 23% during Q3 (through September 14th) 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.