UBS and Fitbit Head In Opposite Directions (FIT, UBS)

Here's why hedge fund sentiment matters to investors

Recent analyst updates on UBS (UBS) and Fitbit (FIT) triggered inverse trading sentiment for these stocks in recent trading, with one making gains and the other sliding into the red.

Let’s find out the detailed market response towards these updates and the hedge fund sentiment surrounding these stocks.

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In its latest round of stock updates, Goldman Sachs (GS) downgraded UBS to a ‘Neutral’ rating from ‘Buy’, triggering bearish investor movement in the pre-market trading session.

According to a report published on CNBC, the downgrade was inspired by the “lack of compelling valuation” for the wealth management company against other European banks.

UBS has had an excellent run in 2015, with its shares improving by 16.21% year-to-date. Despite the healthy return-story of UBS, the smart money was slightly bearish on the stock, with the aggregate holdings of hedge funds increasing by just 9.50% to $870.95 million in the second quarter despite a growth of 12.95% in its share price. The number of hedge funds holding positions in the financial company was up by three to 14 hedgies, however they held just 1.1% of the company’s stock.

Ken Fisher of Fisher Asset Management held the largest stake in UBS among the hedge funds we track at Insider Monkey, holding 26.54 million shares worth $562.71 million. Pzena Investment Management and Polar Capital were among its other major shareholders, having 12.76 million shares and 498,612 shares in their equity portfolios respectively. Dreman Value Management initiated a large position in the holding company during the second quarter comprising 168,383 shares valued at $3.57 million.

It is well-known that hedge funds have under-performed the S&P 500 based on net returns over the past several years. But we are missing something very important here: hedge funds generally pull in strong returns from their top small-cap stocks and invest a lot of their resources into analyzing these companies.

They simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks like Apple (AAPL) underperform the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P 500 every year since it was launched in August 2012, returning 118% and beating the market by more than 60 percentage points (read the details).

Because of this, we know that collective hedge fund sentiment is extremely telling and valuable.

Fitbit (FIT) on the other hand is up in today’s trading session.

Analysts at Pacific Crest initiated coverage of the fitness wearables company with an ‘Overweight’ rating and price target of $47, indicating an upside potential of 43.60% from its current trading price. The firm mentioned the leadership of Fitbit in the wearable health-device market as the primary reason for the rating.

Piper Jaffray’s Erinn E. Murphy is another analyst with an ‘Overweight’ rating for the stock, along with a price target of $60 per share. According to the fifth semi-annual Women’s survey conducted by the research firm, 68% of the women prefer Fitbit’s products to its competitors, while its fitness app ranked second in the category.

A recent report from IDC predicted growth of 163.6% for wearable shipments this year, taking net shipments to 76.1 million units.

Fitbit offers a complete range of wrist-based devices that can measure burned calories, floors climbed, steps taken, and active minutes of the user, along with real-time feedback. Its product range starts as low as $59.95 for the Fitbit Zip and goes up to $249.95 for the Fitbit Surge.

The shares of Fitbit have gained 10.95% since its IPO in June 2015. We tracked the hedge fund sentiment towards the fitness brand and found 27 hedgies in our database already with equity positions in the company by June 30, though they held just 3.2% of its outstanding shares.

The aggregate holdings of hedge funds we track in Fitbit Inc. at the end of the second quarter stood at $249.92 million. Blue Ridge Capital, led by John Griffin, topped the list of hedge funds with positions in FitBit, owning 3.50 million shares worth $133.81 million. Tiger Global Management LLC and Andor Capital Management were among the other prominent shareholders of the company, possessing 500,000 shares and 350,000 shares, respectively.

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