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Was The Smart Money Right About Piling Into Tapestry (TPR)?

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·6 min read
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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Tapestry, Inc. (NYSE:TPR) to find out whether there were any major changes in hedge funds' views.

Tapestry, Inc. (NYSE:TPR) shareholders have witnessed an increase in support from the world's most elite money managers of late. Tapestry, Inc. (NYSE:TPR) was in 49 hedge funds' portfolios at the end of December. The all time high for this statistic was previously 40. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TPR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Aaron Cowen Suvretta Capital
Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we're going to take a look at the new hedge fund action surrounding Tapestry, Inc. (NYSE:TPR).

Do Hedge Funds Think TPR Is A Good Stock To Buy Now?

At the end of December, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TPR over the last 22 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Suvretta Capital Management was the largest shareholder of Tapestry, Inc. (NYSE:TPR), with a stake worth $172.8 million reported as of the end of December. Trailing Suvretta Capital Management was Citadel Investment Group, which amassed a stake valued at $157.5 million. Two Sigma Advisors, Millennium Management, and Holocene Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position MIK Capital allocated the biggest weight to Tapestry, Inc. (NYSE:TPR), around 3.81% of its 13F portfolio. Portland Hill Asset Management is also relatively very bullish on the stock, designating 3.65 percent of its 13F equity portfolio to TPR.

As industrywide interest jumped, key money managers were leading the bulls' herd. Scopus Asset Management, managed by Alexander Mitchell, established the largest position in Tapestry, Inc. (NYSE:TPR). Scopus Asset Management had $52.8 million invested in the company at the end of the quarter. James Parsons's Junto Capital Management also initiated a $48 million position during the quarter. The other funds with new positions in the stock are Steve Cohen's Point72 Asset Management, Alok Agrawal's Bloom Tree Partners, and Principal Global Investors's Columbus Circle Investors.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Tapestry, Inc. (NYSE:TPR) but similarly valued. These stocks are Globant SA (NYSE:GLOB), Alleghany Corporation (NYSE:Y), Dada Nexus Limited (NASDAQ:DADA), AGNC Investment Corp. (NASDAQ:AGNC), Hubbell Incorporated (NYSE:HUBB), ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), and Chemed Corporation (NYSE:CHE). This group of stocks' market caps are similar to TPR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GLOB,15,279923,-6 Y,34,364699,5 DADA,25,168093,8 AGNC,25,353105,-7 HUBB,22,425947,-8 ACAD,38,3081113,-3 CHE,31,428254,-3 Average,27.1,728733,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.1 hedge funds with bullish positions and the average amount invested in these stocks was $729 million. That figure was $1295 million in TPR's case. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is the most popular stock in this table. On the other hand Globant SA (NYSE:GLOB) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Tapestry, Inc. (NYSE:TPR) is more popular among hedge funds. Our overall hedge fund sentiment score for TPR is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks returned 13.6% in 2021 through April 30th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on TPR as the stock returned 54% since the end of December (through 4/30) 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.

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

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