Should You Be Worried About Ralph Lauren Corp (RL)’s Sinking Smart Money Ownership?

Is Ralph Lauren Corp (NYSE:RL) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy league graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments (for some reason media paid a ton of attention to Ackman’s gigantic JC Penney and Valeant failures) and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Ralph Lauren Corp (NYSE:RL) the right investment to pursue these days? Hedge funds are getting less optimistic. The number of bullish hedge fund bets fell by 7 in recent months. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Sabre Corp (NASDAQ:SABR), Foot Locker, Inc. (NYSE:FL), and InterContinental Hotels Group PLC (ADR) (NYSE:IHG) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

How have hedgies been trading Ralph Lauren Corp (NYSE:RL)?

At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a plunge of 22% from the second quarter of 2016, as hedge fund ownership of RL slides to a new low over the past 5 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mason Hawkins’ Southeastern Asset Management has the biggest position in Ralph Lauren Corp (NYSE:RL), worth close to $283.4 million and corresponding to 2.7% of its total 13F portfolio. The second most bullish fund manager is Jim Simons’ Renaissance Technologies, which holds a $47.4 million position. Some other peers that are bullish include Cliff Asness’ AQR Capital Management, Israel Englander’s Millennium Management, and Martin Whitman’s Third Avenue Management.

Since Ralph Lauren Corp (NYSE:RL) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds that slashed their full holdings heading into Q4. Intriguingly, John Lykouretzos’ Hoplite Capital Management dumped the largest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $51.1 million in stock. Alexander Mitchell’s fund, Scopus Asset Management, also sold off its stock, about $50.5 million worth of RL shares. These bearish behaviors are interesting, as total hedge fund interest was cut by 7 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Ralph Lauren Corp (NYSE:RL). We will take a look at Sabre Corp (NASDAQ:SABR), Foot Locker, Inc. (NYSE:FL), InterContinental Hotels Group PLC (ADR) (NYSE:IHG), and W.R. Berkley Corporation (NYSE:WRB). All of these stocks’ market caps are similar to RL’s market cap.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $882 million. That figure was $574 million in RL’s case. Sabre Corp (NASDAQ:SABR) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (ADR) (NYSE:IHG) is the least popular one with only 6 bullish hedge fund positions. Ralph Lauren Corp (NYSE:RL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds have better recent sentiment for. In this regard FL might be a better candidate to consider a long position in.

Disclosure: None