2019 Review: Top Hedge Fund Stocks vs. Urban Outfitters, Inc. (URBN)

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of Urban Outfitters, Inc. (NASDAQ:URBN) based on that data.

Urban Outfitters, Inc. (NASDAQ:URBN) was in 33 hedge funds’ portfolios at the end of September. URBN shareholders have witnessed an increase in hedge fund sentiment recently. There were 21 hedge funds in our database with URBN holdings at the end of the previous quarter. Our calculations also showed that URBN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.


Cliff Asness of AQR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to review the new hedge fund action surrounding Urban Outfitters, Inc. (NASDAQ:URBN).

How have hedgies been trading Urban Outfitters, Inc. (NASDAQ:URBN)?

Heading into the fourth quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 57% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in URBN over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is URBN A Good Stock To Buy?

The largest stake in Urban Outfitters, Inc. (NASDAQ:URBN) was held by AQR Capital Management, which reported holding $56.9 million worth of stock at the end of September. It was followed by 3G Capital with a $44 million position. Other investors bullish on the company included Kettle Hill Capital Management, Holocene Advisors, and Bridgewater Associates. In terms of the portfolio weights assigned to each position Kettle Hill Capital Management allocated the biggest weight to Urban Outfitters, Inc. (NASDAQ:URBN), around 8.9% of its 13F portfolio. 3G Capital is also relatively very bullish on the stock, designating 5.82 percent of its 13F equity portfolio to URBN.

With a general bullishness amongst the heavyweights, specific money managers have jumped into Urban Outfitters, Inc. (NASDAQ:URBN) headfirst. 3G Capital, managed by Jorge Paulo Lemann, assembled the biggest position in Urban Outfitters, Inc. (NASDAQ:URBN). 3G Capital had $44 million invested in the company at the end of the quarter. Andrew Kurita’s Kettle Hill Capital Management also initiated a $37.5 million position during the quarter. The other funds with brand new URBN positions are Dmitry Balyasny’s Balyasny Asset Management, Louis Bacon’s Moore Global Investments, and Anand Parekh’s Alyeska Investment Group.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Urban Outfitters, Inc. (NASDAQ:URBN) but similarly valued. These stocks are Hilton Grand Vacations Inc. (NYSE:HGV), Proto Labs Inc (NYSE:PRLB), El Paso Electric Company (NYSE:EE), and Murphy USA Inc. (NYSE:MUSA). This group of stocks’ market values match URBN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HGV 42 1078532 5
PRLB 8 14581 -1
EE 13 387516 -3
MUSA 19 224363 0
Average 20.5 426248 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $426 million. That figure was $292 million in URBN’s case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Proto Labs Inc (NYSE:PRLB) is the least popular one with only 8 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 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 -17.4% in 2019 (through December 23rd) 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 many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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