In this article we will check out the progression of hedge fund sentiment towards Farfetch Limited (NYSE:FTCH) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Farfetch Limited (NYSE:FTCH) investors should be aware of an increase in support from the world’s most elite money managers recently. Farfetch Limited (NYSE:FTCH) was in 37 hedge funds’ portfolios at the end of June. The all time high for this statistics is 43. Our calculations also showed that FTCH 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 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 S&P 500 ETFs by 58 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 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a glance at the new hedge fund action regarding Farfetch Limited (NYSE:FTCH).
How have hedgies been trading Farfetch Limited (NYSE:FTCH)?
At Q2’s end, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 68% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in FTCH a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in Farfetch Limited (NYSE:FTCH) was held by Tybourne Capital Management, which reported holding $250 million worth of stock at the end of June. It was followed by Miller Value Partners with a $141.8 million position. Other investors bullish on the company included Tremblant Capital, Altimeter Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Tybourne Capital Management allocated the biggest weight to Farfetch Limited (NYSE:FTCH), around 7.61% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, setting aside 6.3 percent of its 13F equity portfolio to FTCH.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, initiated the largest position in Farfetch Limited (NYSE:FTCH). Millennium Management had $28 million invested in the company at the end of the quarter. Brian Bares’s Bares Capital Management also made a $19.7 million investment in the stock during the quarter. The other funds with brand new FTCH positions are Larry Chen and Terry Zhang’s Tairen Capital, Daryl Smith’s Kayak Investment Partners, and David Fiszel’s Honeycomb Asset Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Farfetch Limited (NYSE:FTCH) but similarly valued. We will take a look at Donaldson Company, Inc. (NYSE:DCI), Sensata Technologies Holding plc (NYSE:ST), Santander Consumer USA Holdings Inc (NYSE:SC), Bunge Limited (NYSE:BG), Aluminum Corp. of China Limited (NYSE:ACH), Store Capital Corporation (NYSE:STOR), and Schrodinger, Inc. (NASDAQ:SDGR). This group of stocks’ market caps are similar to FTCH’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $611 million. That figure was $837 million in FTCH’s case. Bunge Limited (NYSE:BG) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 6 bullish hedge fund positions. Farfetch Limited (NYSE:FTCH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FTCH is 85.8. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on FTCH as the stock returned 62.9% since the end of Q2 (through 10/30) 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.