Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Five Below Inc (NASDAQ:FIVE) investors should be aware of an increase in hedge fund sentiment lately. FIVE was in 32 hedge funds’ portfolios at the end of December. There were 26 hedge funds in our database with FIVE positions at the end of the previous quarter. Overall hedge fund sentiment towards the stock is at its all time high. This is usually a bullish sign. For example hedge fund sentiment in Xilinx Inc. (XLNX) was also at its all time high at the beginning of this year and the stock returned more than 46% in 2.5 months. We observed similar performances from OKTA, Twilio, MSCI and Progressive Corporation (PGR); these stocks returned 37%, 37%, 29% and 27% respectively. Hedge fund sentiment towards IQVIA Holdings Inc. (IQV), Brookfield Asset Management (BAM), Atlassian Corporation (TEAM), RCL, MTB, VAR, RNG and CRH hit all time highs at the end of December, and all of these stocks returned more than 20% in the first 2.5-3 months of this year.
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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a gander at the key hedge fund action encompassing Five Below Inc (NASDAQ:FIVE).
Hedge fund activity in Five Below Inc (NASDAQ:FIVE)
At Q4’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in FIVE a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Ken Griffin’s Citadel Investment Group has the biggest position in Five Below Inc (NASDAQ:FIVE), worth close to $74.4 million, corresponding to less than 0.1%% of its total 13F portfolio. Coming in second is Jim Simons of Renaissance Technologies, with a $67.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish consist of Principal Global Investors’s Columbus Circle Investors, John Overdeck and David Siegel’s Two Sigma Advisors and Cliff Asness’s AQR Capital Management.
As one would reasonably expect, some big names have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the biggest position in Five Below Inc (NASDAQ:FIVE). Marshall Wace LLP had $16.9 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also initiated a $16.4 million position during the quarter. The other funds with new positions in the stock are Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, Steven Boyd’s Armistice Capital, and Anthony Joseph Vaccarino’s North Fourth Asset Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Five Below Inc (NASDAQ:FIVE) but similarly valued. These stocks are Michael Kors Holdings Ltd (NYSE:KORS), Allison Transmission Holdings Inc (NYSE:ALSN), Masimo Corporation (NASDAQ:MASI), and Nektar Therapeutics (NASDAQ:NKTR). All of these stocks’ market caps match FIVE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KORS | 33 | 758100 | -14 |
| ALSN | 26 | 1225431 | 2 |
| MASI | 33 | 461739 | 5 |
| NKTR | 20 | 235767 | -7 |
| Average | 28 | 670259 | -3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $670 million. That figure was $388 million in FIVE’s case. Michael Kors Holdings Ltd (NYSE:KORS) is the most popular stock in this table. On the other hand Nektar Therapeutics (NASDAQ:NKTR) is the least popular one with only 20 bullish hedge fund positions. Five Below Inc (NASDAQ:FIVE) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on FIVE as the stock returned 22.6% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
