We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Capri Holdings Limited (NYSE:CPRI) and determine whether hedge funds skillfully traded this stock.
Is Capri Holdings Limited (NYSE:CPRI) the right pick for your portfolio? The best stock pickers were becoming less confident. The number of long hedge fund positions retreated by 1 lately. Capri Holdings Limited (NYSE:CPRI) was in 28 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 47. Our calculations also showed that CPRI 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we're going to take a gander at the recent hedge fund action regarding Capri Holdings Limited (NYSE:CPRI).
How are hedge funds trading Capri Holdings Limited (NYSE:CPRI)?
At second quarter's end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the first quarter of 2020. On the other hand, there were a total of 35 hedge funds with a bullish position in CPRI a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Eminence Capital held the most valuable stake in Capri Holdings Limited (NYSE:CPRI), which was worth $191.9 million at the end of the third quarter. On the second spot was Polaris Capital Management which amassed $88.7 million worth of shares. Arrowstreet Capital, Rima Senvest Management, and AQR Capital Management 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 Proxima Capital Management allocated the biggest weight to Capri Holdings Limited (NYSE:CPRI), around 6.57% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, earmarking 4.39 percent of its 13F equity portfolio to CPRI.
Because Capri Holdings Limited (NYSE:CPRI) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of hedge funds that decided to sell off their full holdings last quarter. It's worth mentioning that Jacob Mitchell's Antipodes Partners sold off the biggest stake of the 750 funds monitored by Insider Monkey, comprising about $15.4 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also dropped its stock, about $4.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Capri Holdings Limited (NYSE:CPRI) but similarly valued. We will take a look at Inari Medical, Inc. (NASDAQ:NARI), MGE Energy, Inc. (NASDAQ:MGEE), BancorpSouth Bank (NYSE:BXS), Park Hotels & Resorts Inc. (NYSE:PK), Taubman Centers, Inc. (NYSE:TCO), Rogers Corporation (NYSE:ROG), and Boyd Gaming Corporation (NYSE:BYD). This group of stocks' market valuations resemble CPRI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NARI,19,79851,19 MGEE,5,66359,-1 BXS,10,32775,-5 PK,21,90634,-5 TCO,40,521866,2 ROG,13,100053,-6 BYD,24,179882,-2 Average,18.9,153060,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.9 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $446 million in CPRI's case. Taubman Centers, Inc. (NYSE:TCO) is the most popular stock in this table. On the other hand MGE Energy, Inc. (NASDAQ:MGEE) is the least popular one with only 5 bullish hedge fund positions. Capri Holdings Limited (NYSE:CPRI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CPRI is 54.7. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on CPRI as the stock returned 24.5% during Q3 (through September 25th) 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.