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Did Hedge Funds Drop The Ball On Avon Products, Inc. (AVP)?

Reymerlyn Martin

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Avon Products, Inc. (NYSE:AVP).

Avon Products, Inc. (NYSE:AVP) was in 24 hedge funds' portfolios at the end of the fourth quarter of 2018. AVP investors should be aware of a decrease in hedge fund interest lately. There were 26 hedge funds in our database with AVP positions at the end of the previous quarter. Our calculations also showed that AVP isn't among the 30 most popular stocks among hedge funds.

To most investors, hedge funds are seen as slow, old financial vehicles of the past. While there are more than 8000 funds trading today, Our researchers choose to focus on the upper echelon of this club, approximately 750 funds. Most estimates calculate that this group of people administer the majority of all hedge funds' total capital, and by following their unrivaled equity investments, Insider Monkey has discovered numerous investment strategies that have historically outpaced Mr. Market. Insider Monkey's flagship hedge fund strategy outstripped the S&P 500 index by nearly 5 percentage points per annum since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

Donald Yacktman

Let's take a glance at the recent hedge fund action regarding Avon Products, Inc. (NYSE:AVP).

How have hedgies been trading Avon Products, Inc. (NYSE:AVP)?

Heading into the first quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in AVP over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AVP_may2019

According to Insider Monkey's hedge fund database, Donald Yacktman's Yacktman Asset Management has the number one position in Avon Products, Inc. (NYSE:AVP), worth close to $29 million, amounting to 0.4% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, managed by Jim Simons, which holds a $21.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism include Constantinos J. Christofilis's Archon Capital Management, Himanshu H. Shah's Shah Capital Management and Chuck Royce's Royce & Associates.

Because Avon Products, Inc. (NYSE:AVP) has faced bearish sentiment from the smart money, we can see that there exists a select few money managers who sold off their positions entirely by the end of the third quarter. Intriguingly, Jerome L. Simon's Lonestar Capital Management said goodbye to the biggest stake of the 700 funds watched by Insider Monkey, valued at about $2.2 million in stock. Steve Cohen's fund, Point72 Asset Management, also cut its stock, about $2 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Avon Products, Inc. (NYSE:AVP) but similarly valued. We will take a look at SP Plus Corp (NASDAQ:SP), Ituran Location and Control Ltd. (US) (NASDAQ:ITRN), Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), and Oritani Financial Corp. (NASDAQ:ORIT). This group of stocks' market values are similar to AVP's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SP,12,90100,0 ITRN,9,106305,-1 DRNA,20,247563,0 ORIT,8,39598,0 Average,12.25,120892,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $129 million in AVP's case. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is the most popular stock in this table. On the other hand Oritani Financial Corp. (NASDAQ:ORIT) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Avon Products, Inc. (NYSE:AVP) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on AVP as the stock returned 71.1% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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