Did Hedge Funds Drop The Ball On Vipshop Holdings Limited (VIPS) ?

The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Vipshop Holdings Limited (NYSE:VIPS), and what that likely means for the prospects of the company and its stock.

Vipshop Holdings Limited (NYSE:VIPS) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 22 hedge funds’ portfolios at the end of the fourth quarter of 2018. At the end of this article we will also compare VIPS to other stocks including Skechers USA Inc (NYSE:SKX), Brighthouse Financial, Inc. (NASDAQ:BHF), and Esterline Technologies Corporation (NYSE:ESL) to get a better sense of its popularity.

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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

01 Mason Hawkins, Southeastern Asset Management

Let’s take a glance at the recent hedge fund action regarding Vipshop Holdings Limited (NYSE:VIPS).

Hedge fund activity in Vipshop Holdings Limited (NYSE:VIPS)

At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VIPS over the last 14 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, Keywise Capital Management held the most valuable stake in Vipshop Holdings Limited (NYSE:VIPS), which was worth $32.5 million at the end of the third quarter. On the second spot was Southeastern Asset Management which amassed $14.5 million worth of shares. Moreover, Indus Capital, Millennium Management, and Kora Management were also bullish on Vipshop Holdings Limited (NYSE:VIPS), allocating a large percentage of their portfolios to this stock.

Judging by the fact that Vipshop Holdings Limited (NYSE:VIPS) has experienced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of money managers that slashed their positions entirely last quarter. Interestingly, Kenneth Tropin’s Graham Capital Management cut the biggest position of all the hedgies monitored by Insider Monkey, comprising close to $11.5 million in stock. Howard Marks’s fund, Oaktree Capital Management, also dumped its stock, about $10.8 million worth. These moves are interesting, 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 Vipshop Holdings Limited (NYSE:VIPS) but similarly valued. These stocks are Skechers USA Inc (NYSE:SKX), Brighthouse Financial, Inc. (NASDAQ:BHF), Esterline Technologies Corporation (NYSE:ESL), and Enstar Group Ltd. (NASDAQ:ESGR). This group of stocks’ market values match VIPS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SKX 25 259895 5
BHF 24 377797 2
ESL 28 569401 8
ESGR 9 497539 -1
Average 21.5 426158 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $426 million. That figure was $121 million in VIPS’s case. Esterline Technologies Corporation (NYSE:ESL) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 9 bullish hedge fund positions. Vipshop Holdings Limited (NYSE:VIPS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on VIPS as the stock returned 42.1% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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