Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the second quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 6.6 percentage points through May 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Farfetch Limited (NYSE:FTCH) was in 43 hedge funds’ portfolios at the end of March. FTCH has seen an increase in support from the world’s most elite money managers of late. There were 18 hedge funds in our database with FTCH positions at the end of the previous quarter. Our calculations also showed that FTCH isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
We’re going to take a gander at the key hedge fund action regarding Farfetch Limited (NYSE:FTCH).
What does the smart money think about Farfetch Limited (NYSE:FTCH)?
At Q1’s end, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 139% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FTCH over the last 15 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Light Street Capital held the most valuable stake in Farfetch Limited (NYSE:FTCH), which was worth $96.5 million at the end of the first quarter. On the second spot was Whale Rock Capital Management which amassed $79.5 million worth of shares. Moreover, Joho Capital, Alkeon Capital Management, and GLG Partners were also bullish on Farfetch Limited (NYSE:FTCH), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Whale Rock Capital Management, managed by Alex Sacerdote, established the biggest position in Farfetch Limited (NYSE:FTCH). Whale Rock Capital Management had $79.5 million invested in the company at the end of the quarter. Eric Bannasch’s Cadian Capital also initiated a $29.6 million position during the quarter. The other funds with new positions in the stock are Jeffrey Talpins’s Element Capital Management, Spencer M. Waxman’s Shannon River Fund Management, and Benjamin A. Smith’s Laurion Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Farfetch Limited (NYSE:FTCH) but similarly valued. We will take a look at The Western Union Company (NYSE:WU), IPG Photonics Corporation (NASDAQ:IPGP), Liberty Media Corporation (NASDAQ:FWONA), and Etsy Inc (NASDAQ:ETSY). This group of stocks’ market values resemble FTCH’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $515 million. That figure was $559 million in FTCH’s case. Etsy Inc (NASDAQ:ETSY) is the most popular stock in this table. On the other hand IPG Photonics Corporation (NASDAQ:IPGP) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Farfetch Limited (NYSE:FTCH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately FTCH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FTCH were disappointed as the stock returned -20.3% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.