Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards Under Armour Inc (NYSE:UA).
Under Armour Inc (NYSE:UA) shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that UA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_340081" align="alignnone" width="600"] Phill Gross of Adage Capital Management[/caption]
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 as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to take a look at the fresh hedge fund action regarding Under Armour Inc (NYSE:UA).
Hedge fund activity in Under Armour Inc (NYSE:UA)
At Q3's end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards UA over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Under Armour Inc (NYSE:UA) was held by Adage Capital Management, which reported holding $334.5 million worth of stock at the end of September. It was followed by Bares Capital Management with a $187.3 million position. Other investors bullish on the company included Alyeska Investment Group, D E Shaw, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Bares Capital Management allocated the biggest weight to Under Armour Inc (NYSE:UA), around 5.62% of its 13F portfolio. Chiron Investment Management is also relatively very bullish on the stock, designating 2.84 percent of its 13F equity portfolio to UA.
Due to the fact that Under Armour Inc (NYSE:UA) has faced declining sentiment from hedge fund managers, it's easy to see that there is a sect of hedge funds that decided to sell off their entire stakes heading into Q4. It's worth mentioning that Steve Cohen's Point72 Asset Management dropped the largest position of the 750 funds tracked by Insider Monkey, comprising close to $12.9 million in stock. Simon Sadler's fund, Segantii Capital, also said goodbye to its stock, about $10.1 million worth. These transactions are interesting, as total hedge fund interest dropped by 6 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to Under Armour Inc (NYSE:UA). These stocks are News Corp (NASDAQ:NWSA), Coupa Software Incorporated (NASDAQ:COUP), Companhia de Saneamento Basico (NYSE:SBS), and Ubiquiti Inc. (NYSE:UI). This group of stocks' market valuations are closest to UA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NWSA,30,428964,7 COUP,55,2562874,-2 SBS,11,372148,-1 UI,16,182015,-1 Average,28,886500,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $887 million. That figure was $921 million in UA's case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico (NYSE:SBS) is the least popular one with only 11 bullish hedge fund positions. Under Armour Inc (NYSE:UA) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately UA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on UA were disappointed as the stock returned 19.8% in 2019 (through December 23rd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.