We at Insider Monkey have gone over 730 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of June 28th. In this article, we look at what those funds think of Lululemon Athletica inc. (NASDAQ:LULU) based on that data.
Is Lululemon Athletica inc. (NASDAQ:LULU) undervalued? Investors who are in the know are in an optimistic mood. The number of long hedge fund positions improved by 7 lately. Our calculations also showed that LULU isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the fresh hedge fund action regarding Lululemon Athletica inc. (NASDAQ:LULU).
What have hedge funds been doing with Lululemon Athletica inc. (NASDAQ:LULU)?
Heading into the third quarter of 2019, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LULU over the last 16 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Lululemon Athletica inc. (NASDAQ:LULU), with a stake worth $324.4 million reported as of the end of March. Trailing AQR Capital Management was Arrowstreet Capital, which amassed a stake valued at $238.1 million. D E Shaw, Melvin Capital Management, and Point72 Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, key money managers have jumped into Lululemon Athletica inc. (NASDAQ:LULU) headfirst. Hitchwood Capital Management, managed by James Crichton, assembled the largest position in Lululemon Athletica inc. (NASDAQ:LULU). Hitchwood Capital Management had $84.7 million invested in the company at the end of the quarter. Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors also initiated a $26.3 million position during the quarter. The other funds with brand new LULU positions are Anand Parekh’s Alyeska Investment Group, Steven Boyd’s Armistice Capital, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s check out hedge fund activity in other stocks similar to Lululemon Athletica inc. (NASDAQ:LULU). We will take a look at Pinduoduo Inc. (NASDAQ:PDD), TAL Education Group (NYSE:TAL), United Airlines Holdings, Inc. (NASDAQ:UAL), and Archer-Daniels-Midland Company (NYSE:ADM). This group of stocks’ market values resemble LULU’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PDD | 29 | 459170 | -3 |
| TAL | 25 | 1185511 | 0 |
| UAL | 47 | 6715542 | -2 |
| ADM | 26 | 473693 | 1 |
| Average | 31.75 | 2208479 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $2208 million. That figure was $1803 million in LULU’s case. United Airlines Holdings, Inc. (NASDAQ:UAL) is the most popular stock in this table. On the other hand TAL Education Group (NYSE:TAL) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Lululemon Athletica inc. (NASDAQ:LULU) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks (see the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on LULU as the stock returned 6.8% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
