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Hedge Funds Are Dumping Urban Outfitters, Inc. (URBN)

Abigail Fisher

In this article we will take a look at whether hedge funds think Urban Outfitters, Inc. (NASDAQ:URBN) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Urban Outfitters, Inc. (NASDAQ:URBN) a superb investment right now? The best stock pickers are getting less optimistic. The number of bullish hedge fund positions were trimmed by 11 in recent months. Our calculations also showed that URBN 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). URBN was in 23 hedge funds' portfolios at the end of the first quarter of 2020. There were 34 hedge funds in our database with URBN holdings at the end of the previous quarter. 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 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_845793" align="aligncenter" width="397"] Peter Rathjens of Arrowstreet Capital[/caption]

Peter Rathjens Arrowstreet Capital 394

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades 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. With all of this in mind we're going to review the fresh hedge fund action encompassing Urban Outfitters, Inc. (NASDAQ:URBN).

How have hedgies been trading Urban Outfitters, Inc. (NASDAQ:URBN)?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in URBN 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, Citadel Investment Group held the most valuable stake in Urban Outfitters, Inc. (NASDAQ:URBN), which was worth $33.7 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $16.6 million worth of shares. Point72 Asset Management, 3G Sahana 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 Cloverdale Capital Management allocated the biggest weight to Urban Outfitters, Inc. (NASDAQ:URBN), around 1.54% of its 13F portfolio. Kettle Hill Capital Management is also relatively very bullish on the stock, designating 1.47 percent of its 13F equity portfolio to URBN.

Because Urban Outfitters, Inc. (NASDAQ:URBN) has experienced falling interest from hedge fund managers, it's easy to see that there were a few fund managers who were dropping their positions entirely last quarter. Interestingly, Brandon Haley's Holocene Advisors said goodbye to the largest position of the "upper crust" of funds tracked by Insider Monkey, worth an estimated $14.4 million in stock. Mark Coe's fund, Intrinsic Edge Capital, also dumped its stock, about $8.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 11 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to Urban Outfitters, Inc. (NASDAQ:URBN). These stocks are SSR Mining Inc. (NASDAQ:SSRM), Fanhua Inc. (NASDAQ:FANH), Palomar Holdings, Inc. (NASDAQ:PLMR), and Vector Group Ltd (NYSE:VGR). This group of stocks' market values are closest to URBN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSRM,22,152203,6 FANH,5,4287,-2 PLMR,7,47406,-1 VGR,16,123143,-1 Average,12.5,81760,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $99 million in URBN's case. SSR Mining Inc. (NASDAQ:SSRM) is the most popular stock in this table. On the other hand Fanhua Inc. (NASDAQ:FANH) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Urban Outfitters, Inc. (NASDAQ:URBN) is more popular among hedge funds. 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 returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on URBN as the stock returned 31% so far in Q2 (through June 10th) 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.

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

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