These Hedge Funds Lost Their Shirts In Luckin Coffee Inc. (LK)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Luckin Coffee Inc. (NASDAQ:LK).

How did hedge funds trade Luckin Coffee Inc. (NASDAQ:LK) before the accounting scandal? Well, the fake sales numbers were good enough to make prominent investors get into an optimistic mood. The number of long hedge fund positions rose by 3 through the end of March. Hedge fund sentiment towards the stock reached its all-time high, but our calculations also showed that LK isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

To most stock holders, hedge funds are assumed to be unimportant, outdated financial tools of yesteryear. Accounting scandals such as this reinforce these feelings. While there are greater than 8000 funds trading at the moment, Our researchers choose to focus on the top tier of this group, around 850 funds. These investment experts handle most of the hedge fund industry’s total capital, and by following their first-class equity investments, Insider Monkey has figured out many investment strategies (long and short) that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .


Louis Bacon Moore of Moore Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the 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 take a look at the key hedge fund action surrounding Luckin Coffee Inc. (NASDAQ:LK).

How are hedge funds trading Luckin Coffee Inc. (NASDAQ:LK)?

At Q1’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in LK a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Luckin Coffee Inc. (NASDAQ:LK) was held by Lone Pine Capital, which reported holding $367.7 million worth of stock at the end of September. It was followed by DSAM Partners with a $146.2 million position. Other investors bullish on the company included Melvin Capital Management, Renaissance Technologies, and Tybourne Capital Management. In terms of the portfolio weights assigned to each position DSAM Partners allocated the biggest weight to Luckin Coffee Inc. (NASDAQ:LK), around 25.75% of its 13F portfolio. Horseman Capital Management is also relatively very bullish on the stock, earmarking 6.11 percent of its 13F equity portfolio to LK.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. DSAM Partners, managed by Guy Shahar, established the biggest position in Luckin Coffee Inc. (NASDAQ:LK). DSAM Partners had $146.2 million invested in the company at the end of the quarter. Renaissance Technologies also made a $57.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Eashwar Krishnan’s Tybourne Capital Management, Louis Bacon’s Moore Global Investments, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s check out hedge fund activity in other stocks similar to Luckin Coffee Inc. (NASDAQ:LK). These stocks are Fidelity National Financial Inc (NYSE:FNF), Cabot Oil & Gas Corporation (NYSE:COG), Iron Mountain Incorporated (NYSE:IRM), and NRG Energy Inc (NYSE:NRG). This group of stocks’ market caps resemble LK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FNF 43 386182 7
COG 37 469345 3
IRM 19 49061 2
NRG 38 859890 -4
Average 34.25 441120 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $441 million. That figure was $1056 million in LK’s case. Fidelity National Financial Inc (NYSE:FNF) is the most popular stock in this table. On the other hand Iron Mountain Incorporated (NYSE:IRM) is the least popular one with only 19 bullish hedge fund positions. Luckin Coffee Inc. (NASDAQ:LK) 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 are piling on. 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately LK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LK were disappointed as the stock returned -92.1% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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