Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits.
Is Ross Stores, Inc. (NASDAQ:ROST) an outstanding investment today? Hedge funds are getting more optimistic. The number of long hedge fund bets advanced by 4 lately. Our calculations also showed that ROST isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). ROST was in 48 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 44 hedge funds in our database with ROST holdings at the end of the previous quarter.
Video: Click the image to 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 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 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.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s take a glance at the new hedge fund action surrounding Ross Stores, Inc. (NASDAQ:ROST).
What have hedge funds been doing with Ross Stores, Inc. (NASDAQ:ROST)?
At Q4’s end, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ROST over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Ross Stores, Inc. (NASDAQ:ROST), with a stake worth $268.7 million reported as of the end of September. Trailing AQR Capital Management was Citadel Investment Group, which amassed a stake valued at $119.9 million. BlueSpruce Investments, GLG Partners, and Alyeska 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 Bristol Gate Capital Partners allocated the biggest weight to Ross Stores, Inc. (NASDAQ:ROST), around 4.56% of its 13F portfolio. BlueSpruce Investments is also relatively very bullish on the stock, setting aside 3.6 percent of its 13F equity portfolio to ROST.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. MIK Capital, managed by Kamyar Khajavi, initiated the most outsized position in Ross Stores, Inc. (NASDAQ:ROST). MIK Capital had $9.3 million invested in the company at the end of the quarter. Gregg Moskowitz’s Interval Partners also initiated a $6.4 million position during the quarter. The other funds with brand new ROST positions are Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, Robert Pitts’s Steadfast Capital Management, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management.
Let’s go over hedge fund activity in other stocks similar to Ross Stores, Inc. (NASDAQ:ROST). These stocks are Ferrari N.V. (NYSE:RACE), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Barclays PLC (NYSE:BCS), and Ecopetrol S.A. (NYSE:EC). All of these stocks’ market caps are closest to ROST’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RACE | 36 | 2003827 | 2 |
| REGN | 37 | 931314 | 2 |
| BCS | 11 | 115501 | -4 |
| EC | 11 | 229258 | 1 |
| Average | 23.75 | 819975 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $820 million. That figure was $1029 million in ROST’s case. Regeneron Pharmaceuticals Inc (NASDAQ:REGN) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Ross Stores, Inc. (NASDAQ:ROST) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately ROST wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ROST were disappointed as the stock returned -18.6% during the first two months of 2020 (through March 9th) 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 in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
