Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Ascena Retail Group Inc (NASDAQ:ASNA) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Vermillion, Inc. (NASDAQ:VRML), Teligent, Inc. (NASDAQ:TLGT), and Wheeler Real Estate Investment Trust, Inc. (NASDAQ:WHLRD) to gather more data points. Our calculations also showed that ASNA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the latest hedge fund action regarding Ascena Retail Group Inc (NASDAQ:ASNA).
What have hedge funds been doing with Ascena Retail Group Inc (NASDAQ:ASNA)?
Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in ASNA a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Stadium Capital Management held the most valuable stake in Ascena Retail Group Inc (NASDAQ:ASNA), which was worth $5.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $1.8 million worth of shares. Renaissance Technologies, Halcyon Asset Management, and AQR Capital Management 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 Stadium Capital Management allocated the biggest weight to Ascena Retail Group Inc (NASDAQ:ASNA), around 3.06% of its 13F portfolio. Halcyon Asset Management is also relatively very bullish on the stock, designating 0.14 percent of its 13F equity portfolio to ASNA.
Since Ascena Retail Group Inc (NASDAQ:ASNA) has faced declining sentiment from the smart money, it’s easy to see that there exists a select few hedgies that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Claes Fornell’s CSat Investment Advisory dumped the largest investment of the 750 funds watched by Insider Monkey, totaling an estimated $0.2 million in stock. Bill Miller’s fund, Miller Value Partners, also cut its stock, about $0 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ascena Retail Group Inc (NASDAQ:ASNA) but similarly valued. We will take a look at Vermillion, Inc. (NASDAQ:VRML), Teligent, Inc. (NASDAQ:TLGT), Wheeler Real Estate Investment Trust, Inc. (NASDAQ:WHLRD), and DPW Holdings, Inc. (NYSE:DPW). All of these stocks’ market caps match ASNA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VRML | 4 | 2683 | 1 |
| TLGT | 7 | 11557 | -1 |
| WHLRD | 3 | 9717 | 3 |
| DPW | 1 | 9351 | 0 |
| Average | 3.75 | 8327 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $10 million in ASNA’s case. Teligent, Inc. (NASDAQ:TLGT) is the most popular stock in this table. On the other hand DPW Holdings, Inc. (NYSE:DPW) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Ascena Retail Group Inc (NASDAQ:ASNA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on ASNA as the stock returned 73.1% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
