Did Hedge Funds Make The Right Call On Bed Bath & Beyond Inc. (BBBY) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtBed Bath & Beyond Inc. (NASDAQ:BBBY) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Bed Bath & Beyond Inc. (NASDAQ:BBBY) investors should be aware of a decrease in enthusiasm from smart money in recent months. Our calculations also showed that BBBY isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Philippe Laffont of Coatue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the latest hedge fund action regarding Bed Bath & Beyond Inc. (NASDAQ:BBBY).

How are hedge funds trading Bed Bath & Beyond Inc. (NASDAQ:BBBY)?

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in BBBY a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Contrarius Investment Management was the largest shareholder of Bed Bath & Beyond Inc. (NASDAQ:BBBY), with a stake worth $51.9 million reported as of the end of September. Trailing Contrarius Investment Management was Legion Partners Asset Management, which amassed a stake valued at $24.1 million. Arrowstreet Capital, Citadel Investment Group, and Southpoint Capital Advisors 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 Legion Partners Asset Management allocated the biggest weight to Bed Bath & Beyond Inc. (NASDAQ:BBBY), around 10.16% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, designating 6.64 percent of its 13F equity portfolio to BBBY.

Due to the fact that Bed Bath & Beyond Inc. (NASDAQ:BBBY) has faced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few fund managers that decided to sell off their entire stakes in the first quarter. Interestingly, William Harnisch’s Peconic Partners LLC sold off the largest stake of all the hedgies tracked by Insider Monkey, worth an estimated $12.1 million in stock. D. E. Shaw’s fund, D E Shaw, also sold off its stock, about $11.3 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 6 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Bed Bath & Beyond Inc. (NASDAQ:BBBY). We will take a look at RadNet Inc. (NASDAQ:RDNT), FinVolution Group (NYSE:FINV), H&E Equipment Services, Inc. (NASDAQ:HEES), and HomeStreet Inc (NASDAQ:HMST). This group of stocks’ market caps are closest to BBBY’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $137 million in BBBY’s case. RadNet Inc. (NASDAQ:RDNT) is the most popular stock in this table. On the other hand FinVolution Group (NYSE:FINV) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Bed Bath & Beyond Inc. (NASDAQ:BBBY) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on BBBY as the stock returned 151.8% in Q2 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.