We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Foot Locker, Inc. (NYSE:FL) based on those filings.
Foot Locker, Inc. (NYSE:FL) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Our calculations also showed that FL isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 more than 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26340" align="aligncenter" width="400"] Ken Griffin of Citadel Investment Group[/caption]
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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's go over the key hedge fund action encompassing Foot Locker, Inc. (NYSE:FL).
How are hedge funds trading Foot Locker, Inc. (NYSE:FL)?
Heading into the first quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the third quarter of 2019. By comparison, 35 hedge funds held shares or bullish call options in FL a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in Foot Locker, Inc. (NYSE:FL). AQR Capital Management has a $157.3 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $74.9 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions encompass Israel Englander's Millennium Management, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Simcoe Capital Management allocated the biggest weight to Foot Locker, Inc. (NYSE:FL), around 2.82% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, dishing out 2.29 percent of its 13F equity portfolio to FL.
Due to the fact that Foot Locker, Inc. (NYSE:FL) has experienced declining sentiment from hedge fund managers, logic holds that there lies a certain "tier" of money managers who sold off their positions entirely heading into Q4. Interestingly, Ray Dalio's Bridgewater Associates cut the biggest investment of the 750 funds tracked by Insider Monkey, worth an estimated $35.4 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also cut its stock, about $33.3 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 5 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Foot Locker, Inc. (NYSE:FL) but similarly valued. We will take a look at Penske Automotive Group, Inc. (NYSE:PAG), RH (NYSE:RH), CVR Energy, Inc. (NYSE:CVI), and Intercept Pharmaceuticals Inc (NASDAQ:ICPT). All of these stocks' market caps match FL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PAG,29,99761,12 RH,38,1195655,3 CVI,31,3034481,3 ICPT,27,485264,4 Average,31.25,1203790,5.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $1204 million. That figure was $427 million in FL's case. RH (NYSE:RH) is the most popular stock in this table. On the other hand Intercept Pharmaceuticals Inc (NASDAQ:ICPT) is the least popular one with only 27 bullish hedge fund positions. Foot Locker, Inc. (NYSE:FL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately FL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FL investors were disappointed as the stock returned -44.1% during the same time period 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 most of these stocks already outperformed the market in Q1. 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.