Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze The Chefs Warehouse, Inc (NASDAQ:CHEF) from the perspective of those elite funds.
Hedge fund interest in The Chefs Warehouse, Inc (NASDAQ:CHEF) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Standex Int’l Corp. (NYSE:SXI), ShockWave Medical, Inc. (NASDAQ:SWAV), and Quotient Technology Inc (NYSE:QUOT) to gather more data points.
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 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 view the fresh hedge fund action surrounding The Chefs Warehouse, Inc (NASDAQ:CHEF).
Hedge fund activity in The Chefs Warehouse, Inc (NASDAQ:CHEF)
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CHEF over the last 15 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in The Chefs Warehouse, Inc (NASDAQ:CHEF) was held by Renaissance Technologies, which reported holding $35.5 million worth of stock at the end of March. It was followed by Driehaus Capital with a $7.2 million position. Other investors bullish on the company included PDT Partners, Marshall Wace LLP, and AQR Capital Management.
Because The Chefs Warehouse, Inc (NASDAQ:CHEF) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of money managers that elected to cut their entire stakes last quarter. At the top of the heap, Principal Global Investors’s Columbus Circle Investors cut the biggest stake of all the hedgies watched by Insider Monkey, totaling close to $1.2 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also dumped its stock, about $0.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to The Chefs Warehouse, Inc (NASDAQ:CHEF). These stocks are Standex Int’l Corp. (NYSE:SXI), ShockWave Medical, Inc. (NASDAQ:SWAV), Quotient Technology Inc (NYSE:QUOT), and Sturm, Ruger & Company, Inc. (NYSE:RGR). This group of stocks’ market caps are similar to CHEF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SXI | 11 | 17893 | 3 |
| SWAV | 14 | 98199 | 14 |
| QUOT | 16 | 228016 | 4 |
| RGR | 17 | 110759 | 3 |
| Average | 14.5 | 113717 | 6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $47 million in CHEF’s case. Sturm, Ruger & Company, Inc. (NYSE:RGR) is the most popular stock in this table. On the other hand Standex Int’l Corp. (NYSE:SXI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks The Chefs Warehouse, Inc (NASDAQ:CHEF) is even less popular than SXI. Hedge funds clearly dropped the ball on CHEF as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on CHEF as the stock returned 9.2% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
