Is Lululemon Athletica inc. (LULU) Going to Burn These Hedge Funds?

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in October, blaming macroeconomic conditions and unpredictable events that hit several sectors, with healthcare among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about Lululemon Athletica inc. (NASDAQ:LULU) in this article.

Lululemon Athletica inc. (NASDAQ:LULU) has experienced an increase in hedge fund interest recently. Our calculations also showed that LULU 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 18 percentage points since May 2014 through December 3, 2018 (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.

D. E. Shaw

Let’s take a peek at the fresh hedge fund action encompassing Lululemon Athletica inc. (NASDAQ:LULU).

How are hedge funds trading Lululemon Athletica inc. (NASDAQ:LULU)?

At Q3’s end, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in LULU over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with LULU Positions

Among these funds, D E Shaw held the most valuable stake in Lululemon Athletica inc. (NASDAQ:LULU), which was worth $302.5 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $300.7 million worth of shares. Moreover, AQR Capital Management, Arrowstreet Capital, and Citadel Investment Group were also bullish on Lululemon Athletica inc. (NASDAQ:LULU), allocating a large percentage of their portfolios to this stock.

Consequently, some big names were breaking ground themselves. Sandler Capital Management, managed by Andrew Sandler, initiated the most valuable position in Lululemon Athletica inc. (NASDAQ:LULU). Sandler Capital Management had $11.8 million invested in the company at the end of the quarter. Steven Boyd’s Armistice Capital also made a $8.1 million investment in the stock during the quarter. The other funds with brand new LULU positions are Frank Slattery’s Symmetry Peak Management, Jamie Mendola’s Pacific Grove Capital, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Lululemon Athletica inc. (NASDAQ:LULU). These stocks are Hess Corporation (NYSE:HES), The Hershey Company (NYSE:HSY), IHS Markit Ltd. (NASDAQ:INFO), and Cerner Corporation (NASDAQ:CERN). 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
HES 37 2364508 5
HSY 29 448888 4
INFO 31 1334993 4
CERN 25 889948 3
Average 30.5 1259584 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $1.26 billion. That figure was $1.65 billion in LULU’s case. Hess Corporation (NYSE:HES) is the most popular stock in this table. On the other hand Cerner Corporation (NASDAQ:CERN) 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. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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