The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 18.7% through May 30th, vs. a gain of 12.1% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Urban Outfitters, Inc. (NASDAQ:URBN), and what that likely means for the prospects of the company and its stock.
Is Urban Outfitters, Inc. (NASDAQ:URBN) a safe investment now? The best stock pickers are becoming less confident. The number of long hedge fund bets were trimmed by 3 in recent months. Our calculations also showed that URBN isn't among the 30 most popular stocks among hedge funds. URBN was in 25 hedge funds' portfolios at the end of the first quarter of 2019. There were 28 hedge funds in our database with URBN holdings at the end of the previous quarter.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to go over the key hedge fund action regarding Urban Outfitters, Inc. (NASDAQ:URBN).
What have hedge funds been doing with Urban Outfitters, Inc. (NASDAQ:URBN)?
At Q1's end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in URBN over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in Urban Outfitters, Inc. (NASDAQ:URBN). AQR Capital Management has a $133.2 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Jim Simons of Renaissance Technologies, with a $71.4 million position; 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism encompass Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Ken Griffin's Citadel Investment Group and Ray Dalio's Bridgewater Associates.
Due to the fact that Urban Outfitters, Inc. (NASDAQ:URBN) has faced a decline in interest from the smart money, it's easy to see that there were a few hedgies who sold off their entire stakes last quarter. It's worth mentioning that Principal Global Investors's Columbus Circle Investors dumped the biggest stake of the "upper crust" of funds tracked by Insider Monkey, worth close to $22.8 million in stock, and Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital was right behind this move, as the fund said goodbye to about $11.3 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 3 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Urban Outfitters, Inc. (NASDAQ:URBN). We will take a look at Five9 Inc (NASDAQ:FIVN), Alarm.com Holdings Inc (NASDAQ:ALRM), Domtar Corporation (NYSE:UFS), and Mercury Systems Inc (NASDAQ:MRCY). This group of stocks' market caps resemble URBN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FIVN,25,524383,-3 ALRM,16,218728,1 UFS,19,178842,-6 MRCY,15,58014,9 Average,18.75,244992,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $245 million. That figure was $415 million in URBN's case. Five9 Inc (NASDAQ:FIVN) is the most popular stock in this table. On the other hand Mercury Systems Inc (NASDAQ:MRCY) is the least popular one with only 15 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 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 -23.5% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.