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Did Hedge Funds Make The Right Call On Foot Locker, Inc. (FL) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Foot Locker, Inc. (NYSE:FL) and determine whether hedge funds skillfully traded this stock.

Foot Locker, Inc. (NYSE:FL) investors should pay attention to a decrease in hedge fund interest recently. Our calculations also showed that FL 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.

According to most traders, hedge funds are assumed to be underperforming, old financial tools of yesteryear. While there are more than 8000 funds trading today, Our experts hone in on the moguls of this group, around 850 funds. These money managers have their hands on the lion’s share of all hedge funds’ total capital, and by observing their first-class stock picks, Insider Monkey has determined a number of investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Kerr Neilson of Platinum Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s take a look at the latest hedge fund action encompassing Foot Locker, Inc. (NYSE:FL).

How are hedge funds trading Foot Locker, Inc. (NYSE:FL)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in FL a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of Foot Locker, Inc. (NYSE:FL), with a stake worth $54.1 million reported as of the end of September. Trailing AQR Capital Management was Citadel Investment Group, which amassed a stake valued at $26 million. Ariel Investments, Millennium Management, and Platinum Asset 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 Invenomic Capital Management allocated the biggest weight to Foot Locker, Inc. (NYSE:FL), around 1.04% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, dishing out 0.39 percent of its 13F equity portfolio to FL.

Since Foot Locker, Inc. (NYSE:FL) has witnessed falling interest from hedge fund managers, logic holds that there exists a select few hedge funds that elected to cut their entire stakes last quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $74.9 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund dropped about $22.9 million worth. These moves are interesting, as total hedge fund interest dropped by 8 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Foot Locker, Inc. (NYSE:FL) but similarly valued. These stocks are South Jersey Industries Inc (NYSE:SJI), Marriott Vacations Worldwide Corporation (NYSE:VAC), UFP Industries, Inc. (NASDAQ:UFPI), and NCR Corporation (NYSE:NCR). This group of stocks’ market valuations resemble FL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SJI 13 88904 -5
VAC 25 299416 0
UFPI 17 67371 -10
NCR 32 155675 0
Average 21.75 152842 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $147 million in FL’s case. NCR Corporation (NYSE:NCR) is the most popular stock in this table. On the other hand South Jersey Industries Inc (NYSE:SJI) is the least popular one with only 13 bullish hedge fund positions. Foot Locker, Inc. (NYSE:FL) is not the least popular stock in this group but hedge fund interest is still below average. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on FL as the stock returned 37.9% since the end of March and outperformed the market by an even larger margin.

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