It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Capri Holdings Limited (NYSE:CPRI).
Capri Holdings Limited (NYSE:CPRI) was in 37 hedge funds' portfolios at the end of September. CPRI investors should pay attention to an increase in hedge fund interest recently. There were 35 hedge funds in our database with CPRI positions at the end of the previous quarter. Our calculations also showed that CPRI 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_339739" align="aligncenter" width="600"] Ricky Sandler of Eminence Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example 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. 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 is still extremely cheap despite already gaining 20 percent. Now let's take a gander at the new hedge fund action surrounding Capri Holdings Limited (NYSE:CPRI).
How have hedgies been trading Capri Holdings Limited (NYSE:CPRI)?
At Q3's end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CPRI over the last 17 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.
More specifically, Eminence Capital was the largest shareholder of Capri Holdings Limited (NYSE:CPRI), with a stake worth $450.1 million reported as of the end of September. Trailing Eminence Capital was D E Shaw, which amassed a stake valued at $111.5 million. Rima Senvest Management, Masters Capital Management, and Arrowstreet 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 Atlantic Investment Management allocated the biggest weight to Capri Holdings Limited (NYSE:CPRI), around 11.28% of its 13F portfolio. Rima Senvest Management is also relatively very bullish on the stock, dishing out 7.64 percent of its 13F equity portfolio to CPRI.
Consequently, key money managers have been driving this bullishness. Masters Capital Management, managed by Mike Masters, initiated the most valuable call position in Capri Holdings Limited (NYSE:CPRI). Masters Capital Management had $33.2 million invested in the company at the end of the quarter. Alexander Roepers's Atlantic Investment Management also made a $32.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Mark Coe's Intrinsic Edge Capital, William C. Martin's Raging Capital Management, and George McCabe's Portolan Capital Management.
Let's now take a look at hedge fund activity in other stocks similar to Capri Holdings Limited (NYSE:CPRI). We will take a look at First Industrial Realty Trust, Inc. (NYSE:FR), PS Business Parks Inc (NYSE:PSB), OneMain Holdings Inc (NYSE:OMF), and Wyndham Hotels & Resorts, Inc. (NYSE:WH). This group of stocks' market caps resemble CPRI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FR,16,240768,-2 PSB,17,60032,3 OMF,26,398536,-1 WH,36,800953,-4 Average,23.75,375072,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $375 million. That figure was $920 million in CPRI's case. Wyndham Hotels & Resorts, Inc. (NYSE:WH) is the most popular stock in this table. On the other hand First Industrial Realty Trust, Inc. (NYSE:FR) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Capri Holdings Limited (NYSE:CPRI) is more popular among hedge funds. 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 CPRI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CPRI were disappointed as the stock returned 0% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019. 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.