Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, with 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Coty Inc (NYSE:COTY).
Coty Inc (NYSE:COTY) was in 23 hedge funds’ portfolios at the end of September. COTY investors should pay attention to an increase in hedge fund sentiment recently. There were 20 hedge funds in our database with COTY holdings at the end of the previous quarter. 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 Vipshop Holdings Ltd – ADR (NYSE:VIPS), Waters Corporation (NYSE:WAT), and Empresa Nacional de Electricidad (ADR) (NYSE:EOC) to gather more data points.
Follow Coty Inc. (NYSE:COTY)
Follow Coty Inc. (NYSE:COTY)
At the moment there are many formulas market participants use to value stocks. A duo of the most underrated formulas are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the best hedge fund managers can beat the S&P 500 by a very impressive amount (see the details here).
With all of this in mind, we’re going to go over the latest action regarding Coty Inc (NYSE:COTY).
How are hedge funds trading Coty Inc (NYSE:COTY)?
Heading into Q4, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 15% from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, MSDC Management, managed by Marc Lisker, Glenn Fuhrman and John Phelan, holds the most valuable position in Coty Inc (NYSE:COTY). According to its latest quarterly report, the fund has a $84.5 million position in the stock, comprising 2.8% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, managed by Jim Simons, which holds a $65.3 million stake; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish encompass Nehal Chopra’s Ratan Capital Group, Ken Griffin’s Citadel Investment Group and John Overdeck and David Siegel’s Two Sigma Advisors.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Permian Investment Partners, managed by Alex Duran and Scott Hendrickson, initiated the most outsized position in Coty Inc (NYSE:COTY). The fund reportedly had $24.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $22.8 million investment in the stock during the quarter. The following funds were also among the new COTY investors: David Steinberg and Eric Udoff’s Marlowe Partners, Neil Chriss’s Hutchin Hill Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Coty Inc (NYSE:COTY) but similarly valued. These stocks are Vipshop Holdings Ltd – ADR (NYSE:VIPS), Waters Corporation (NYSE:WAT), Empresa Nacional de Electricidad (ADR) (NYSE:EOC), and Cimarex Energy Co (NYSE:XEC). This group of stocks’ market caps match COTY’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $841 million. That figure was just $438 million in COTY’s case. Vipshop Holdings Ltd – ADR (NYSE:VIPS) is the most popular stock in this table, while Empresa Nacional de Electricidad (ADR) (NYSE:EOC) is the least popular one with only 7 bullish hedge fund positions. Coty Inc (NYSE:COTY) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard VIPS might be a better candidate to consider a long position.