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Did Hedge Funds Make The Right Call On Coty Inc (COTY) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtCoty Inc (NYSE:COTY) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Coty Inc (NYSE:COTY) going to take off soon? The smart money was buying. The number of long hedge fund positions rose by 4 recently. Our calculations also showed that COTY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ricky Sandler of Eminence Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the fresh hedge fund action encompassing Coty Inc (NYSE:COTY).

How are hedge funds trading Coty Inc (NYSE:COTY)?

At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in COTY over the last 18 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.

More specifically, Eminence Capital was the largest shareholder of Coty Inc (NYSE:COTY), with a stake worth $67.1 million reported as of the end of September. Trailing Eminence Capital was JNE Partners, which amassed a stake valued at $27.5 million. Contrarius Investment Management, Woodson Capital Management, and Arrowstreet Capital 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 JNE Partners allocated the biggest weight to Coty Inc (NYSE:COTY), around 28.56% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, earmarking 2.05 percent of its 13F equity portfolio to COTY.

Consequently, key money managers have been driving this bullishness. Woodson Capital Management, managed by James Woodson Davis, established the most valuable position in Coty Inc (NYSE:COTY). Woodson Capital Management had $12.4 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $3.5 million investment in the stock during the quarter. The following funds were also among the new COTY investors: Mike Vranos’s Ellington, Yi Xin’s Ariose Capital, and Cliff Asness’s AQR Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Coty Inc (NYSE:COTY) but similarly valued. We will take a look at Hudson Pacific Properties Inc (NYSE:HPP), US Foods Holding Corp. (NYSE:USFD), Equity Commonwealth (NYSE:EQC), and Cogent Communications Holdings Inc. (NASDAQ:CCOI). This group of stocks’ market caps are similar to COTY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HPP 19 231967 0
USFD 33 507135 -4
EQC 20 176264 -2
CCOI 27 454195 3
Average 24.75 342390 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $342 million. That figure was $183 million in COTY’s case. US Foods Holding Corp. (NYSE:USFD) is the most popular stock in this table. On the other hand Hudson Pacific Properties Inc (NYSE:HPP) is the least popular one with only 19 bullish hedge fund positions. Coty Inc (NYSE:COTY) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately COTY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on COTY were disappointed as the stock returned -13.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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