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 12-month period ending October 30. 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 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. 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.
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 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.
We’re going to take a look at the latest hedge fund action encompassing Ralph Lauren Corporation (NYSE:RL).
What have hedge funds been doing with Ralph Lauren Corporation (NYSE:RL)?
At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the second quarter of 2018. On the other hand, there were a total of 26 hedge funds with a bullish position in RL at the beginning of this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Ralph Lauren Corporation (NYSE:RL), which was worth $365.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $134.7 million worth of shares. Moreover, Scopus Asset Management, Point72 Asset Management, and Millennium Management were also bullish on Ralph Lauren Corporation (NYSE:RL), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Ralph Lauren Corporation (NYSE:RL) headfirst. Scopus Asset Management, managed by Alexander Mitchell, initiated the biggest call position in Ralph Lauren Corporation (NYSE:RL). Scopus Asset Management had $70.5 million invested in the company at the end of the quarter. Steven Boyd’s Armistice Capital also made a $30 million investment in the stock during the quarter. The other funds with new positions in the stock are Louis Bacon’s Moore Global Investments, Benjamin A. Smith’s Laurion Capital Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s check out hedge fund activity in other stocks similar to Ralph Lauren Corporation (NYSE:RL). We will take a look at Hologic, Inc. (NASDAQ:HOLX), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), The Gap Inc. (NYSE:GPS), and Huntington Ingalls Industries Inc (NYSE:HII). This group of stocks’ market valuations are closest to RL’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $731 million. That figure was $990 million in RL’s case. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is the most popular stock in this table. On the other hand Hologic, Inc. (NASDAQ:HOLX) is the least popular one with only 22 bullish hedge fund positions. Ralph Lauren Corporation (NYSE:RL) 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. In this regard NBIX might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.