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Did Hedge Funds Make The Right Call On Vipshop Holdings Limited (VIPS) ?

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 Vipshop Holdings Limited (NYSE:VIPS) and determine whether hedge funds skillfully traded this stock.

Vipshop Holdings Limited (NYSE:VIPS) investors should pay attention to an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that VIPS 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.

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 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 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.

NAVELLIER & ASSOCIATES

Louis Navellier of Navellier & Associates

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. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding Vipshop Holdings Limited (NYSE:VIPS).

How have hedgies been trading Vipshop Holdings Limited (NYSE:VIPS)?

Heading into the second quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in VIPS a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is VIPS A Good Stock To Buy?

The largest stake in Vipshop Holdings Limited (NYSE:VIPS) was held by Hillhouse Capital Management, which reported holding $109.8 million worth of stock at the end of September. It was followed by Keywise Capital Management with a $84.3 million position. Other investors bullish on the company included Arrowstreet Capital, GLG Partners, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Keywise Capital Management allocated the biggest weight to Vipshop Holdings Limited (NYSE:VIPS), around 22.83% of its 13F portfolio. Sensato Capital Management is also relatively very bullish on the stock, designating 6.42 percent of its 13F equity portfolio to VIPS.

Consequently, key hedge funds have jumped into Vipshop Holdings Limited (NYSE:VIPS) headfirst. Hillhouse Capital Management, managed by Lei Zhang, initiated the most outsized position in Vipshop Holdings Limited (NYSE:VIPS). Hillhouse Capital Management had $109.8 million invested in the company at the end of the quarter. Glen Kacher’s Light Street Capital also initiated a $32.1 million position during the quarter. The other funds with new positions in the stock are Leung Chi Kit’s Kadensa Capital, Dmitry Balyasny’s Balyasny Asset Management, and Louis Navellier’s Navellier & Associates.

Let’s now take a look at hedge fund activity in other stocks similar to Vipshop Holdings Limited (NYSE:VIPS). These stocks are Burlington Stores Inc (NYSE:BURL), Liberty Global plc (NASDAQ:LBTYA), Insulet Corporation (NASDAQ:PODD), and Occidental Petroleum Corporation (NYSE:OXY). This group of stocks’ market caps resemble VIPS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BURL 40 937584 4
LBTYA 30 812772 3
PODD 36 648302 2
OXY 35 1384528 -9
Average 35.25 945797 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.25 hedge funds with bullish positions and the average amount invested in these stocks was $946 million. That figure was $554 million in VIPS’s case. Burlington Stores Inc (NYSE:BURL) is the most popular stock in this table. On the other hand Liberty Global plc (NASDAQ:LBTYA) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Vipshop Holdings Limited (NYSE:VIPS) is even less popular than LBTYA. Hedge funds clearly dropped the ball on VIPS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on VIPS as the stock returned 27.8% in the second quarter and outperformed the market by an even larger margin.

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