Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 18.7% compared to 12.1%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Columbia Sportswear Company (NASDAQ:COLM) investors should pay attention to an increase in support from the world’s most elite money managers lately. COLM was in 32 hedge funds’ portfolios at the end of March. There were 24 hedge funds in our database with COLM positions at the end of the previous quarter. Our calculations also showed that COLM isn’t among the 30 most popular stocks among hedge funds.
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’ 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 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 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.
Let’s take a gander at the key hedge fund action encompassing Columbia Sportswear Company (NASDAQ:COLM).
What have hedge funds been doing with Columbia Sportswear Company (NASDAQ:COLM)?
At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in COLM over the last 15 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Columbia Sportswear Company (NASDAQ:COLM) was held by Arrowstreet Capital, which reported holding $53.8 million worth of stock at the end of March. It was followed by Millennium Management with a $50 million position. Other investors bullish on the company included Two Sigma Advisors, AQR Capital Management, and Renaissance Technologies.
As aggregate interest increased, some big names were leading the bulls’ herd. Hudson Bay Capital Management, managed by Sander Gerber, created the most outsized position in Columbia Sportswear Company (NASDAQ:COLM). Hudson Bay Capital Management had $4.2 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also made a $3.9 million investment in the stock during the quarter. The other funds with new positions in the stock are James Dondero’s Highland Capital Management, Minhua Zhang’s Weld Capital Management, and Ian Simm’s Impax Asset Management.
Let’s also examine hedge fund activity in other stocks similar to Columbia Sportswear Company (NASDAQ:COLM). These stocks are Roku, Inc. (NASDAQ:ROKU), Cimarex Energy Co (NYSE:XEC), Hill-Rom Holdings, Inc. (NYSE:HRC), and Signature Bank (NASDAQ:SBNY). This group of stocks’ market caps match COLM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ROKU | 33 | 505452 | 7 |
| XEC | 30 | 1100137 | 2 |
| HRC | 29 | 621941 | 0 |
| SBNY | 36 | 649446 | 0 |
| Average | 32 | 719244 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $719 million. That figure was $359 million in COLM’s case. Signature Bank (NASDAQ:SBNY) is the most popular stock in this table. On the other hand Hill-Rom Holdings, Inc. (NYSE:HRC) is the least popular one with only 29 bullish hedge fund positions. Columbia Sportswear Company (NASDAQ:COLM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately COLM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); COLM investors were disappointed as the stock returned -9.8% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
