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Did Hedge Funds Make The Right Call On Sprouts Farmers Market Inc (SFM) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Sprouts Farmers Market Inc (NASDAQ:SFM) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Hedge fund interest in Sprouts Farmers Market Inc (NASDAQ:SFM) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Axsome Therapeutics, Inc. (NASDAQ:AXSM), MyoKardia, Inc. (NASDAQ:MYOK), and GrafTech International Ltd. (NYSE:EAF) to gather more data points. Our calculations also showed that SFM 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.

To most investors, hedge funds are seen as worthless, old financial tools of years past. While there are greater than 8000 funds with their doors open today, Our researchers hone in on the aristocrats of this group, around 850 funds. These hedge fund managers manage most of all hedge funds’ total capital, and by following their finest stock picks, Insider Monkey has revealed several investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy surpassed 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 .

Richard Driehaus of Driehaus Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now let’s take a look at the fresh hedge fund action encompassing Sprouts Farmers Market Inc (NASDAQ:SFM).

Hedge fund activity in Sprouts Farmers Market Inc (NASDAQ:SFM)

At Q1’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SFM over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SFM A Good Stock To Buy?

The largest stake in Sprouts Farmers Market Inc (NASDAQ:SFM) was held by Renaissance Technologies, which reported holding $147 million worth of stock at the end of September. It was followed by D E Shaw with a $32.3 million position. Other investors bullish on the company included AQR Capital Management, Impax Asset Management, and GLG Partners. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Sprouts Farmers Market Inc (NASDAQ:SFM), around 0.39% of its 13F portfolio. AlphaOne Capital Partners is also relatively very bullish on the stock, earmarking 0.38 percent of its 13F equity portfolio to SFM.

Since Sprouts Farmers Market Inc (NASDAQ:SFM) has witnessed falling interest from hedge fund managers, it’s easy to see that there is a sect of fund managers that elected to cut their positions entirely by the end of the first quarter. Interestingly, Paul Tudor Jones’s Tudor Investment Corp said goodbye to the largest stake of the 750 funds watched by Insider Monkey, worth about $3.4 million in stock. Richard Driehaus’s fund, Driehaus Capital, also dropped its stock, about $1.7 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Sprouts Farmers Market Inc (NASDAQ:SFM) but similarly valued. These stocks are Axsome Therapeutics, Inc. (NASDAQ:AXSM), MyoKardia, Inc. (NASDAQ:MYOK), GrafTech International Ltd. (NYSE:EAF), and Allakos Inc. (NASDAQ:ALLK). All of these stocks’ market caps are closest to SFM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AXSM 24 457937 -1
MYOK 33 562366 7
EAF 23 126467 -10
ALLK 12 207018 -3
Average 23 338447 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $338 million. That figure was $312 million in SFM’s case. MyoKardia, Inc. (NASDAQ:MYOK) is the most popular stock in this table. On the other hand Allakos Inc. (NASDAQ:ALLK) is the least popular one with only 12 bullish hedge fund positions. Sprouts Farmers Market Inc (NASDAQ:SFM) is not the most popular stock in this group but hedge fund interest is still above 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on SFM as the stock returned 37.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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