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Were Hedge Funds Right About Lululemon Athletica inc. (LULU)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtLululemon Athletica inc. (NASDAQ:LULU) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Lululemon Athletica inc. (NASDAQ:LULU) investors should be aware of a decrease in enthusiasm from smart money lately. LULU was in 40 hedge funds’ portfolios at the end of the first quarter of 2020. There were 47 hedge funds in our database with LULU positions at the end of the previous quarter. Our calculations also showed that LULU 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.

If you’d ask most shareholders, hedge funds are viewed as unimportant, outdated financial vehicles of yesteryear. While there are over 8000 funds trading at present, We choose to focus on the masters of this group, around 850 funds. Most estimates calculate that this group of people preside over the majority of the hedge fund industry’s total capital, and by monitoring their highest performing equity investments, Insider Monkey has discovered a number of investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy outpaced 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 .

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s go over the key hedge fund action regarding Lululemon Athletica inc. (NASDAQ:LULU).

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

Heading into the second quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 42 hedge funds with a bullish position in LULU a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies, holds the largest position in Lululemon Athletica inc. (NASDAQ:LULU). Renaissance Technologies has a $169.9 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $120.7 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions consist of D. E. Shaw’s D E Shaw, Robert Pohly’s Samlyn Capital and Eashwar Krishnan’s Tybourne Capital Management. In terms of the portfolio weights assigned to each position MIK Capital allocated the biggest weight to Lululemon Athletica inc. (NASDAQ:LULU), around 3.69% of its 13F portfolio. Tybourne Capital Management is also relatively very bullish on the stock, designating 2.88 percent of its 13F equity portfolio to LULU.

Seeing as Lululemon Athletica inc. (NASDAQ:LULU) has witnessed falling interest from the smart money, logic holds that there exists a select few fund managers that slashed their positions entirely in the first quarter. Intriguingly, James Crichton’s Hitchwood Capital Management cut the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $42.6 million in stock. Ken Griffin’s fund, Citadel Investment Group, also cut its stock, about $33.6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 7 funds in the first quarter.

Let’s go over 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 MSCI Inc (NYSE:MSCI), Manulife Financial Corporation (NYSE:MFC), Marriott International Inc (NASDAQ:MAR), and Mercadolibre Inc (NASDAQ:MELI). This group of stocks’ market valuations match LULU’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MSCI 29 638503 -13
MFC 20 139150 1
MAR 47 1553974 10
MELI 60 2099088 8
Average 39 1107679 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $1108 million. That figure was $789 million in LULU’s case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand Manulife Financial Corporation (NYSE:MFC) is the least popular one with only 20 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 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on LULU as the stock returned 64.6% in 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.