In this article we will check out the progression of hedge fund sentiment towards Tapestry, Inc. (NYSE:TPR) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is TPR a good stock to buy now? Tapestry, Inc. (NYSE:TPR) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 39 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that TPR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare TPR to other stocks including Navistar International Corp (NYSE:NAV), Littelfuse, Inc. (NASDAQ:LFUS), and Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) to get a better sense of its popularity. 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 66 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.
Aaron Cowen of Suvretta Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. With all of this in mind let's take a gander at the fresh hedge fund action surrounding Tapestry, Inc. (NYSE:TPR).
Do Hedge Funds Think TPR Is A Good Stock To Buy Now?
At Q3's end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in TPR over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Tapestry, Inc. (NYSE:TPR), with a stake worth $118.5 million reported as of the end of September. Trailing Citadel Investment Group was Suvretta Capital Management, which amassed a stake valued at $62.4 million. Two Sigma Advisors, Millennium Management, and Antipodes Partners 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 Prentice Capital Management allocated the biggest weight to Tapestry, Inc. (NYSE:TPR), around 8.92% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, setting aside 2.68 percent of its 13F equity portfolio to TPR.
Due to the fact that Tapestry, Inc. (NYSE:TPR) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of money managers who were dropping their entire stakes last quarter. Interestingly, Robert Pohly's Samlyn Capital said goodbye to the biggest stake of the 750 funds tracked by Insider Monkey, comprising close to $68.2 million in stock, and David Fear's Thunderbird Partners was right behind this move, as the fund dumped about $50.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Tapestry, Inc. (NYSE:TPR). These stocks are Navistar International Corp (NYSE:NAV), Littelfuse, Inc. (NASDAQ:LFUS), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), Starwood Property Trust, Inc. (NYSE:STWD), Ashland Global Holdings Inc.. (NYSE:ASH), China Biologic Products Holdings Inc (NASDAQ:CBPO), and Silicon Laboratories (NASDAQ:SLAB). This group of stocks' market values are closest to TPR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NAV,43,2102650,10 LFUS,22,352091,-2 ARNA,43,989966,2 STWD,17,93721,-5 ASH,46,1104849,14 CBPO,18,848680,-5 SLAB,26,99748,-2 Average,30.7,798815,1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.7 hedge funds with bullish positions and the average amount invested in these stocks was $799 million. That figure was $671 million in TPR's case. Ashland Global Holdings Inc.. (NYSE:ASH) is the most popular stock in this table. On the other hand Starwood Property Trust, Inc. (NYSE:STWD) is the least popular one with only 17 bullish hedge fund positions. Tapestry, Inc. (NYSE:TPR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TPR is 72.2. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on TPR as the stock returned 84.6% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.