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 Farfetch Limited (NYSE:FTCH).
Farfetch Limited (NYSE:FTCH) was in 22 hedge funds' portfolios at the end of the third quarter of 2019. FTCH has seen a decrease in support from the world's most elite money managers recently. There were 24 hedge funds in our database with FTCH positions at the end of the previous quarter. Our calculations also showed that FTCH 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_364876" align="aligncenter" width="540"] Eashwar Krishnan of Tybourne Capital Management[/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 gander at the key hedge fund action surrounding Farfetch Limited (NYSE:FTCH).
What does smart money think about Farfetch Limited (NYSE:FTCH)?
At Q3's end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the second quarter of 2019. By comparison, 28 hedge funds held shares or bullish call options in FTCH a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Eashwar Krishnan's Tybourne Capital Management has the most valuable position in Farfetch Limited (NYSE:FTCH), worth close to $133.8 million, comprising 5.8% of its total 13F portfolio. The second largest stake is held by Light Street Capital, led by Glen Kacher, holding a $37.4 million position; 2.7% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish comprise Christian Leone's Luxor Capital Group, George Soros's Soros Fund Management and Brad Gerstner's Altimeter Capital Management. In terms of the portfolio weights assigned to each position Tybourne Capital Management allocated the biggest weight to Farfetch Limited (NYSE:FTCH), around 5.82% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, designating 4.56 percent of its 13F equity portfolio to FTCH.
Since Farfetch Limited (NYSE:FTCH) has witnessed falling interest from the aggregate hedge fund industry, we can see that there lies a certain "tier" of hedge funds that slashed their positions entirely in the third quarter. Interestingly, Eric Bannasch's Cadian Capital sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, worth close to $52 million in stock. Noam Gottesman's fund, GLG Partners, also cut its stock, about $29.1 million worth. These transactions are important to note, as total hedge fund interest was cut by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Farfetch Limited (NYSE:FTCH) but similarly valued. We will take a look at Crestwood Equity Partners LP (NYSE:CEQP), First Interstate Bancsystem Inc (NASDAQ:FIBK), Cabot Corporation (NYSE:CBT), and Barnes Group Inc. (NYSE:B). This group of stocks' market valuations are closest to FTCH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CEQP,6,7498,2 FIBK,9,62050,-2 CBT,18,120961,1 B,13,24632,-2 Average,11.5,53785,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $241 million in FTCH's case. Cabot Corporation (NYSE:CBT) is the most popular stock in this table. On the other hand Crestwood Equity Partners LP (NYSE:CEQP) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Farfetch Limited (NYSE:FTCH) is more popular among hedge funds. 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. Hedge funds were also right about betting on FTCH as the stock returned 15.3% during the first two months of Q4 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.
Disclosure: None. This article was originally published at Insider Monkey.