Hedge Funds Are Dumping Vipshop Holdings Limited (VIPS)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Vipshop Holdings Limited (NYSE:VIPS).

Vipshop Holdings Limited (NYSE:VIPS) has experienced a decrease in hedge fund sentiment lately. Vipshop Holdings Limited (NYSE:VIPS) was in 36 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 54. Our calculations also showed that VIPS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Lei Zhang Hillhouse Capital

Lei Zhang of Hillhouse Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now let’s analyze the new hedge fund action surrounding Vipshop Holdings Limited (NYSE:VIPS).

Do Hedge Funds Think VIPS Is A Good Stock To Buy Now?

At second quarter’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VIPS over the last 24 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Anatole Investment Management held the most valuable stake in Vipshop Holdings Limited (NYSE:VIPS), which was worth $183.6 million at the end of the second quarter. On the second spot was Hillhouse Capital Management which amassed $180 million worth of shares. Pentwater Capital Management, Crake Asset Management, and Renaissance Technologies 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 Anatole Investment Management allocated the biggest weight to Vipshop Holdings Limited (NYSE:VIPS), around 18.29% of its 13F portfolio. Half Sky Capital is also relatively very bullish on the stock, earmarking 11.31 percent of its 13F equity portfolio to VIPS.

Because Vipshop Holdings Limited (NYSE:VIPS) has witnessed falling interest from hedge fund managers, it’s easy to see that there is a sect of fund managers that slashed their positions entirely heading into Q3. Intriguingly, Steve Cohen’s Point72 Asset Management cut the largest stake of the “upper crust” of funds watched by Insider Monkey, worth an estimated $95.7 million in stock. Frank Fu’s fund, CaaS Capital, also dumped its stock, about $78.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 18 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Vipshop Holdings Limited (NYSE:VIPS). We will take a look at Fortune Brands Home & Security Inc (NYSE:FBHS), Crown Holdings, Inc. (NYSE:CCK), IAC/InterActiveCorp (NASDAQ:IAC), Tuya Inc. (NYSE:TUYA), RLX Technology Inc. (NYSE:RLX), CureVac N.V. (NASDAQ:CVAC), and Whirlpool Corporation (NYSE:WHR). This group of stocks’ market caps match VIPS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FBHS 28 411937 5
CCK 53 1981122 -7
IAC 50 1226152 -13
TUYA 8 224184 -7
RLX 12 192836 -11
CVAC 12 24977 3
WHR 32 1175762 4
Average 27.9 748139 -3.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $748 million. That figure was $1307 million in VIPS’s case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Tuya Inc. (NYSE:TUYA) is the least popular one with only 8 bullish hedge fund positions. Vipshop Holdings Limited (NYSE:VIPS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VIPS is 38.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and beat the market again by 4.4 percentage points. Unfortunately VIPS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on VIPS were disappointed as the stock returned -44.3% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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