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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Under Armour Inc (NYSE:UA).
Under Armour Inc (NYSE:UA) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 51 hedge funds' portfolios at the end of the second quarter of 2021. Our calculations also showed that UA isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Huntington Ingalls Industries Inc (NYSE:HII), Jefferies Financial Group Inc. (NYSE:JEF), and Advanced Drainage Systems Inc. (NYSE:WMS) to gather more data points.
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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, artificial intelligence is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging AI stock. We go through lists like the 10 best EV 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. With all of this in mind we're going to go over the recent hedge fund action regarding Under Armour Inc (NYSE:UA).
Do Hedge Funds Think UA Is A Good Stock To Buy Now?
At the end of June, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in UA over the last 24 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Adage Capital Management held the most valuable stake in Under Armour Inc (NYSE:UA), which was worth $332.7 million at the end of the second quarter. On the second spot was D E Shaw which amassed $132.2 million worth of shares. Arrowstreet Capital, SRS Investment Management, and SRS Investment Management 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 One Fin Capital Management allocated the biggest weight to Under Armour Inc (NYSE:UA), around 3.25% of its 13F portfolio. CQS Cayman LP is also relatively very bullish on the stock, designating 2.04 percent of its 13F equity portfolio to UA.
Judging by the fact that Under Armour Inc (NYSE:UA) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers who sold off their positions entirely heading into Q3. It's worth mentioning that Nicolai Tangen's Ako Capital dropped the largest investment of all the hedgies followed by Insider Monkey, worth about $135.7 million in stock, and Jack Woodruff's Candlestick Capital Management was right behind this move, as the fund cut about $57.8 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 also examine hedge fund activity in other stocks - not necessarily in the same industry as Under Armour Inc (NYSE:UA) but similarly valued. We will take a look at Huntington Ingalls Industries Inc (NYSE:HII), Jefferies Financial Group Inc. (NYSE:JEF), Advanced Drainage Systems Inc. (NYSE:WMS), Arrow Electronics, Inc. (NYSE:ARW), Polaris Inc. (NYSE:PII), Life Storage, Inc. (NYSE:LSI), and Mirati Therapeutics, Inc. (NASDAQ:MRTX). This group of stocks' market values resemble UA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HII,21,153435,1 JEF,29,698210,-9 WMS,26,1337049,-3 ARW,30,711641,7 PII,20,464211,-9 LSI,21,261561,-5 MRTX,55,2790783,-2 Average,28.9,916699,-2.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $917 million. That figure was $1787 million in UA's case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand Polaris Inc. (NYSE:PII) is the least popular one with only 20 bullish hedge fund positions. Under Armour Inc (NYSE:UA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UA is 79.3. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately UA wasn't nearly as popular as these 5 stocks and hedge funds that were betting on UA were disappointed as the stock returned -2.7% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.