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Lululemon Athletica inc. (LULU): Hedge Funds Cashing Out

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Lululemon Athletica inc. (NASDAQ:LULU) based on that data and determine whether they were really smart about the stock.

Is Lululemon Athletica inc. (NASDAQ:LULU) a healthy stock for your portfolio? The best stock pickers were becoming less hopeful. The number of bullish hedge fund bets retreated by 1 lately. Lululemon Athletica inc. (NASDAQ:LULU) was in 39 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 52. Our calculations also showed that LULU isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Anna Nikolayevsky Axel Capital

Anna Nikolayevsky of Axel Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to view the recent hedge fund action surrounding Lululemon Athletica inc. (NASDAQ:LULU).

How have hedgies been trading Lululemon Athletica inc. (NASDAQ:LULU)?

Heading into the third quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LULU over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Lululemon Athletica inc. (NASDAQ:LULU) was held by Citadel Investment Group, which reported holding $292 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $185.9 million position. Other investors bullish on the company included D E Shaw, AQR Capital Management, and PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Axel Capital Management allocated the biggest weight to Lululemon Athletica inc. (NASDAQ:LULU), around 6.11% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, designating 2.04 percent of its 13F equity portfolio to LULU.

Seeing as Lululemon Athletica inc. (NASDAQ:LULU) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of funds that elected to cut their positions entirely last quarter. At the top of the heap, Eashwar Krishnan’s Tybourne Capital Management said goodbye to the biggest investment of the “upper crust” of funds tracked by Insider Monkey, worth about $78.7 million in stock. Steve Cohen’s fund, Point72 Asset Management, also cut its stock, about $30.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Lululemon Athletica inc. (NASDAQ:LULU) but similarly valued. We will take a look at Roper Technologies Inc. (NYSE:ROP), TAL Education Group (NYSE:TAL), TC Energy Corporation (NYSE:TRP), Banco Santander, S.A. (NYSE:SAN), Keurig Dr Pepper Inc. (NYSE:KDP), Enterprise Products Partners L.P. (NYSE:EPD), and Prudential Public Limited Company (NYSE:PUK). This group of stocks’ market values are closest to LULU’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ROP 45 1101856 7
TAL 40 2367131 2
TRP 21 255710 -3
SAN 16 351399 -2
KDP 29 725935 -1
EPD 30 222209 4
PUK 5 9403 -1
Average 26.6 719092 0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.6 hedge funds with bullish positions and the average amount invested in these stocks was $719 million. That figure was $687 million in LULU’s case. Roper Technologies Inc. (NYSE:ROP) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 5 bullish hedge fund positions. Lululemon Athletica inc. (NASDAQ:LULU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LULU is 69. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on LULU as the stock returned 20.4% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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