We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Vipshop Holdings Limited (NYSE:VIPS) and determine whether hedge funds skillfully traded this stock.
Vipshop Holdings Limited (NYSE:VIPS) investors should pay attention to a decrease in support from the world's most elite money managers lately. Vipshop Holdings Limited (NYSE:VIPS) was in 28 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 42. There were 30 hedge funds in our database with VIPS holdings at the end of March. Our calculations also showed that VIPS 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Lee Ainslie MAVERICK CAPITAL
Lee Ainslie of Maverick Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Now let's go over the key hedge fund action surrounding Vipshop Holdings Limited (NYSE:VIPS).
Hedge fund activity in Vipshop Holdings Limited (NYSE:VIPS)
Heading into the third quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VIPS over the last 20 quarters. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Hillhouse Capital Management held the most valuable stake in Vipshop Holdings Limited (NYSE:VIPS), which was worth $109.1 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $80.8 million worth of shares. GLG Partners, Keywise Capital Management, and Hosking Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Half Sky Capital allocated the biggest weight to Vipshop Holdings Limited (NYSE:VIPS), around 8.2% of its 13F portfolio. Keywise Capital Management is also relatively very bullish on the stock, designating 7.47 percent of its 13F equity portfolio to VIPS.
Due to the fact that Vipshop Holdings Limited (NYSE:VIPS) has experienced declining sentiment from the smart money, we can see that there were a few funds that elected to cut their entire stakes last quarter. Intriguingly, Glen Kacher's Light Street Capital sold off the biggest investment of all the hedgies followed by Insider Monkey, comprising about $32.1 million in stock. D. E. Shaw's fund, D E Shaw, also sold off its stock, about $18.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Vipshop Holdings Limited (NYSE:VIPS). We will take a look at Altice USA, Inc. (NYSE:ATUS), M&T Bank Corporation (NYSE:MTB), Sun Communities Inc (NYSE:SUI), Magna International Inc. (NYSE:MGA), Leidos Holdings Inc (NYSE:LDOS), Wix.Com Ltd (NASDAQ:WIX), and Masco Corporation (NYSE:MAS). All of these stocks' market caps are similar to VIPS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ATUS,57,2576910,10 MTB,30,658440,9 SUI,30,436381,2 MGA,19,467472,-3 LDOS,35,617234,5 WIX,27,1258178,-2 MAS,40,827096,6 Average,34,977387,3.9 [/table]
As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $977 million. That figure was $441 million in VIPS's case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand Magna International Inc. (NYSE:MGA) is the least popular one with only 19 bullish hedge fund positions. Vipshop Holdings Limited (NYSE:VIPS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VIPS is 34.8. 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. This is a slightly negative signal and 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately VIPS wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VIPS investors were disappointed as the stock returned -14.7% since Q2 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 most of these stocks already outperformed the market in 2020.
