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Hedge Funds Are Souring On Tapestry, Inc. (TPR)

Abigail Fisher

In this article you are going to find out whether hedge funds think Tapestry, Inc. (NYSE:TPR) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Tapestry, Inc. (NYSE:TPR) was in 37 hedge funds' portfolios at the end of the first quarter of 2020. TPR has experienced a decrease in enthusiasm from smart money lately. There were 40 hedge funds in our database with TPR holdings at the end of the previous quarter. Our calculations also showed that TPR 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). Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 51 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Abrams Bison Investor Letters

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. Now we're going to analyze the latest hedge fund action surrounding Tapestry, Inc. (NYSE:TPR).

How have hedgies been trading Tapestry, Inc. (NYSE:TPR)?

At Q1's end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TPR over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Samlyn Capital, managed by Robert Pohly, holds the number one position in Tapestry, Inc. (NYSE:TPR). Samlyn Capital has a $114 million position in the stock, comprising 2.9% of its 13F portfolio. The second largest stake is held by Ken Griffin of Citadel Investment Group, with a $51.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other members of the smart money that hold long positions include John Overdeck and David Siegel's Two Sigma Advisors, Jacob Mitchell's Antipodes Partners and John W. Rogers's Ariel Investments. In terms of the portfolio weights assigned to each position Samlyn Capital allocated the biggest weight to Tapestry, Inc. (NYSE:TPR), around 2.88% of its 13F portfolio. Portland Hill Asset Management is also relatively very bullish on the stock, designating 2.85 percent of its 13F equity portfolio to TPR.

Since Tapestry, Inc. (NYSE:TPR) has witnessed falling interest from the aggregate hedge fund industry, we can see that there was a specific group of funds that slashed their full holdings by the end of the third quarter. At the top of the heap, Steven Boyd's Armistice Capital said goodbye to the largest position of the 750 funds tracked by Insider Monkey, comprising close to $7.9 million in stock, and Kamyar Khajavi's MIK Capital was right behind this move, as the fund sold off about $5.4 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds by the end of the third quarter.

Let's now review hedge fund activity in other stocks similar to Tapestry, Inc. (NYSE:TPR). These stocks are AGCO Corporation (NYSE:AGCO), TerraForm Power Inc (NASDAQ:TERP), Graphic Packaging Holding Company (NYSE:GPK), and Neogen Corporation (NASDAQ:NEOG). This group of stocks' market valuations are closest to TPR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGCO,19,125602,-9 TERP,17,217631,2 GPK,33,340462,-6 NEOG,16,33336,0 Average,21.25,179258,-3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $179 million. That figure was $351 million in TPR's case. Graphic Packaging Holding Company (NYSE:GPK) is the most popular stock in this table. On the other hand Neogen Corporation (NASDAQ:NEOG) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Tapestry, Inc. (NYSE:TPR) 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 gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. Unfortunately TPR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on TPR were disappointed as the stock returned 5% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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