We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Canada Goose Holdings Inc. (NYSE:GOOS) based on those filings.
Is Canada Goose Holdings Inc. (NYSE:GOOS) undervalued? The best stock pickers are becoming hopeful. The number of long hedge fund positions inched up by 5 recently. Our calculations also showed that GOOS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 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 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.
Andreas Halvorsen of Viking Global
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the recent hedge fund action regarding Canada Goose Holdings Inc. (NYSE:GOOS).
How have hedgies been trading Canada Goose Holdings Inc. (NYSE:GOOS)?
At Q4’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GOOS over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
More specifically, Select Equity Group was the largest shareholder of Canada Goose Holdings Inc. (NYSE:GOOS), with a stake worth $157.7 million reported as of the end of September. Trailing Select Equity Group was Viking Global, which amassed a stake valued at $88.5 million. Broad Peak Investment Holdings, Kylin Management, and Citadel Investment Group 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 Kylin Management allocated the biggest weight to Canada Goose Holdings Inc. (NYSE:GOOS), around 6.52% of its 13F portfolio. Stony Point Capital is also relatively very bullish on the stock, designating 4.79 percent of its 13F equity portfolio to GOOS.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Canada Goose Holdings Inc. (NYSE:GOOS) headfirst. Viking Global, managed by Andreas Halvorsen, created the biggest position in Canada Goose Holdings Inc. (NYSE:GOOS). Viking Global had $88.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $12.3 million position during the quarter. The other funds with brand new GOOS positions are Leung Chi Kit’s Kadensa Capital, Richard Walters II’s Stony Point Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Canada Goose Holdings Inc. (NYSE:GOOS) but similarly valued. We will take a look at Arcosa, Inc. (NYSE:ACA), Gray Television, Inc. (NYSE:GTN), Eidos Therapeutics, Inc. (NASDAQ:EIDX), and Freshpet Inc (NASDAQ:FRPT). This group of stocks’ market valuations are similar to GOOS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ACA | 20 | 247153 | -8 |
| GTN | 24 | 252616 | 0 |
| EIDX | 20 | 312421 | 5 |
| FRPT | 20 | 122100 | 2 |
| Average | 21 | 233573 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $234 million. That figure was $379 million in GOOS’s case. Gray Television, Inc. (NYSE:GTN) is the most popular stock in this table. On the other hand Arcosa, Inc. (NYSE:ACA) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Canada Goose Holdings Inc. (NYSE:GOOS) is even less popular than ACA. Hedge funds dodged a bullet by taking a bearish stance towards GOOS. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately GOOS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); GOOS investors were disappointed as the stock returned -42.9% 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 most of these stocks already outperformed the market so far in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
