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Hedge Funds Were Selling Under Armour Inc (UA) Before The Coronavirus

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Under Armour Inc (NYSE:UA).

Under Armour Inc (NYSE:UA) investors should pay attention to a decrease in hedge fund sentiment recently. UA was in 32 hedge funds’ portfolios at the end of December. There were 34 hedge funds in our database with UA holdings at the end of the previous quarter. Our calculations also showed that UA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 S&P 500 ETFs by 41 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.

Bill Miller

Bill Miller of Miller Value Partners

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s view the key hedge fund action regarding Under Armour Inc (NYSE:UA).

What does smart money think about Under Armour Inc (NYSE:UA)?

At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UA over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in Under Armour Inc (NYSE:UA) was held by Adage Capital Management, which reported holding $232.5 million worth of stock at the end of September. It was followed by Adage Capital Management with a $203.3 million position. Other investors bullish on the company included Bares Capital Management, Lone Pine Capital, and Alyeska Investment Group. In terms of the portfolio weights assigned to each position Bares Capital Management allocated the biggest weight to Under Armour Inc (NYSE:UA), around 5.55% of its 13F portfolio. Southport Management is also relatively very bullish on the stock, designating 1.46 percent of its 13F equity portfolio to UA.

Due to the fact that Under Armour Inc (NYSE:UA) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few funds who sold off their entire stakes by the end of the third quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management sold off the biggest investment of the 750 funds tracked by Insider Monkey, valued at close to $21.9 million in stock. Peter Muller’s fund, PDT Partners, also dropped its stock, about $10.2 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Under Armour Inc (NYSE:UA). These stocks are RenaissanceRe Holdings Ltd. (NYSE:RNR), Cypress Semiconductor Corporation (NASDAQ:CY), PTC Inc (NASDAQ:PTC), and Zendesk Inc (NYSE:ZEN). This group of stocks’ market caps resemble UA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RNR 23 765361 5
CY 36 1441339 1
PTC 35 1101313 5
ZEN 61 1843205 14
Average 38.75 1287805 6.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $1288 million. That figure was $1014 million in UA’s case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand RenaissanceRe Holdings Ltd. (NYSE:RNR) is the least popular one with only 23 bullish hedge fund positions. Under Armour Inc (NYSE:UA) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately UA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); UA investors were disappointed as the stock returned -56.6% during the same time 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 most of these stocks already outperformed the market in Q1.
5 Most Popular Stocks Among Hedge Funds
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.

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