We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Urban Outfitters, Inc. (NASDAQ:URBN).
Urban Outfitters, Inc. (NASDAQ:URBN) was in 33 hedge funds' portfolios at the end of September. URBN has seen an increase in hedge fund sentiment in recent months. There were 21 hedge funds in our database with URBN positions at the end of the previous quarter. Our calculations also showed that URBN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 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_221466" align="aligncenter" width="600"] Jorge Paulo Lemann of 3G Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the key hedge fund action regarding Urban Outfitters, Inc. (NASDAQ:URBN).
How have hedgies been trading Urban Outfitters, Inc. (NASDAQ:URBN)?
At the end of the third quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 57% from one quarter earlier. On the other hand, there were a total of 31 hedge funds with a bullish position in URBN a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness's AQR Capital Management has the number one position in Urban Outfitters, Inc. (NASDAQ:URBN), worth close to $56.9 million, corresponding to 0.1% of its total 13F portfolio. The second largest stake is held by 3G Capital, led by Jorge Paulo Lemann, holding a $44 million position; 5.8% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions comprise Andrew Kurita's Kettle Hill Capital Management, Brandon Haley's Holocene Advisors and Ray Dalio's Bridgewater Associates. In terms of the portfolio weights assigned to each position Kettle Hill Capital Management allocated the biggest weight to Urban Outfitters, Inc. (NASDAQ:URBN), around 8.9% of its portfolio. 3G Capital is also relatively very bullish on the stock, earmarking 5.82 percent of its 13F equity portfolio to URBN.
As aggregate interest increased, key hedge funds have been driving this bullishness. 3G Capital, managed by Jorge Paulo Lemann, established the most outsized position in Urban Outfitters, Inc. (NASDAQ:URBN). 3G Capital had $44 million invested in the company at the end of the quarter. Andrew Kurita's Kettle Hill Capital Management also made a $37.5 million investment in the stock during the quarter. The following funds were also among the new URBN investors: Dmitry Balyasny's Balyasny Asset Management, Louis Bacon's Moore Global Investments, and Anand Parekh's Alyeska Investment Group.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Urban Outfitters, Inc. (NASDAQ:URBN) but similarly valued. These stocks are Hilton Grand Vacations Inc. (NYSE:HGV), Proto Labs Inc (NYSE:PRLB), El Paso Electric Company (NYSE:EE), and Murphy USA Inc. (NYSE:MUSA). This group of stocks' market caps are similar to URBN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HGV,42,1078532,5 PRLB,8,14581,-1 EE,13,387516,-3 MUSA,19,224363,0 Average,20.5,426248,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $426 million. That figure was $292 million in URBN's case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Proto Labs Inc (NYSE:PRLB) is the least popular one with only 8 bullish hedge fund positions. Urban Outfitters, Inc. (NASDAQ:URBN) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately URBN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on URBN were disappointed as the stock returned -8.7% during the fourth quarter (through the end of November) 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.
Disclosure: None. This article was originally published at Insider Monkey.