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Hedge Funds Aren’t Crazy About Lululemon Athletica inc. (LULU) Anymore

Abigail Fisher

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Lululemon Athletica inc. (NASDAQ:LULU) based on that data.

Is Lululemon Athletica inc. (NASDAQ:LULU) a bargain? Investors who are in the know are getting less bullish. The number of long hedge fund bets were trimmed by 7 in recent months. Our calculations also showed that LULU isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). LULU was in 40 hedge funds' portfolios at the end of the first quarter of 2020. There were 47 hedge funds in our database with LULU positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 87% since March 2017 and outperformed the S&P 500 ETFs by more than 51 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_256989" align="aligncenter" width="394"] Dmitry Balyasny of Balyasny Asset Management[/caption]

Dmitry Balyasny of Balyasny Asset Managemnet

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a peek at the latest hedge fund action surrounding Lululemon Athletica inc. (NASDAQ:LULU).

How have hedgies been trading Lululemon Athletica inc. (NASDAQ:LULU)?

At the end of the first quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. By comparison, 42 hedge funds held shares or bullish call options in LULU a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Lululemon Athletica inc. (NASDAQ:LULU) was held by Renaissance Technologies, which reported holding $169.9 million worth of stock at the end of September. It was followed by AQR Capital Management with a $120.7 million position. Other investors bullish on the company included D E Shaw, Samlyn Capital, and Tybourne Capital Management. In terms of the portfolio weights assigned to each position MIK Capital allocated the biggest weight to Lululemon Athletica inc. (NASDAQ:LULU), around 3.69% of its 13F portfolio. Tybourne Capital Management is also relatively very bullish on the stock, earmarking 2.88 percent of its 13F equity portfolio to LULU.

Due to the fact that Lululemon Athletica inc. (NASDAQ:LULU) has faced falling interest from the aggregate hedge fund industry, we can see that there is a sect of money managers who were dropping their full holdings heading into Q4. Intriguingly, James Crichton's Hitchwood Capital Management dumped the biggest investment of the 750 funds followed by Insider Monkey, totaling about $42.6 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund sold off about $33.6 million worth. These transactions are important to note, as total hedge fund interest was cut by 7 funds heading into Q4.

Let's also examine hedge fund activity in other stocks similar to Lululemon Athletica inc. (NASDAQ:LULU). These stocks are MSCI Inc (NYSE:MSCI), Manulife Financial Corporation (NYSE:MFC), Marriott International Inc (NASDAQ:MAR), and Mercadolibre Inc (NASDAQ:MELI). All of these stocks' market caps resemble LULU's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSCI,29,638503,-13 MFC,20,139150,1 MAR,47,1553974,10 MELI,60,2099088,8 Average,39,1107679,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $1108 million. That figure was $789 million in LULU's case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand Manulife Financial Corporation (NYSE:MFC) is the least popular one with only 20 bullish hedge fund positions. Lululemon Athletica inc. (NASDAQ:LULU) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on LULU as the stock returned 58.3% in Q2 (through the end of May) 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.

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