Here’s What Hedge Funds Think About Vipshop Holdings Limited (VIPS)

Abigail Fisher

Sun, Jun 23, 2019, 7:45 PM

Is Vipshop Holdings Limited (NYSE:VIPS) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Vipshop Holdings Limited (NYSE:VIPS) an attractive investment today? The best stock pickers are taking a pessimistic view. The number of bullish hedge fund positions went down by 5 recently. Our calculations also showed that VIPS isn't among the 30 most popular stocks among hedge funds. VIPS was in 17 hedge funds' portfolios at the end of March. There were 22 hedge funds in our database with VIPS holdings at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Let's review the new hedge fund action encompassing Vipshop Holdings Limited (NYSE:VIPS).

What have hedge funds been doing with Vipshop Holdings Limited (NYSE:VIPS)?

At Q1's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from one quarter earlier. By comparison, 39 hedge funds held shares or bullish call options in VIPS a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Keywise Capital Management, managed by Fang Zheng, holds the number one position in Vipshop Holdings Limited (NYSE:VIPS). Keywise Capital Management has a $58.7 million position in the stock, comprising 26.2% of its 13F portfolio. Coming in second is Indus Capital, managed by David Kowitz and Sheldon Kasowitz, which holds a $24.4 million position; the fund has 3.2% of its 13F portfolio invested in the stock. Remaining peers that are bullish contain Ken Griffin's Citadel Investment Group, Nitin Saigal and Dan Jacobs's Kora Management and Cliff Asness's AQR Capital Management.

Because Vipshop Holdings Limited (NYSE:VIPS) has witnessed falling interest from the smart money, we can see that there is a sect of money managers that elected to cut their entire stakes by the end of the third quarter. Interestingly, Michael Johnston's Steelhead Partners dropped the biggest investment of the "upper crust" of funds tracked by Insider Monkey, valued at close to $27.1 million in stock, and Daniel Gold's QVT Financial was right behind this move, as the fund dropped about $16 million worth. These moves are interesting, as total hedge fund interest dropped by 5 funds by the end of the third quarter.

Let's now take a look at hedge fund activity in other stocks similar to Vipshop Holdings Limited (NYSE:VIPS). These stocks are Array Biopharma Inc (NASDAQ:ARRY), Transocean Ltd (NYSE:RIG), Hudson Pacific Properties Inc (NYSE:HPP), and Lincoln Electric Holdings, Inc. (NASDAQ:LECO). This group of stocks' market valuations are closest to VIPS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARRY,32,1106924,1 RIG,37,756782,4 HPP,12,362610,0 LECO,26,308752,7 Average,26.75,633767,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $634 million. That figure was $125 million in VIPS's case. Transocean Ltd (NYSE:RIG) is the most popular stock in this table. On the other hand Hudson Pacific Properties Inc (NYSE:HPP) is the least popular one with only 12 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. 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately VIPS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VIPS investors were disappointed as the stock returned 2.1% 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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

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