Helen of Troy Limited (HELE): Hedge Funds In Wait-and-See Mode

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Helen of Troy Limited (NASDAQ:HELE).

Is Helen of Troy Limited (NASDAQ:HELE) a splendid investment now? Money managers are becoming less hopeful. The number of long hedge fund bets decreased by 1 recently. Our calculations also showed that HELE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). HELE was in 16 hedge funds’ portfolios at the end of the first quarter of 2020. There were 17 hedge funds in our database with HELE holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 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.

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 free email services without phone verification to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the new hedge fund action regarding Helen of Troy Limited (NASDAQ:HELE).

What does smart money think about Helen of Troy Limited (NASDAQ:HELE)?

At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in HELE a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Fisher Asset Management held the most valuable stake in Helen of Troy Limited (NASDAQ:HELE), which was worth $77.4 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $26.6 million worth of shares. Renaissance Technologies, Maverick Capital, and AQR Capital Management 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 Ellington allocated the biggest weight to Helen of Troy Limited (NASDAQ:HELE), around 0.14% of its 13F portfolio. Maverick Capital is also relatively very bullish on the stock, setting aside 0.12 percent of its 13F equity portfolio to HELE.

Since Helen of Troy Limited (NASDAQ:HELE) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of funds that elected to cut their full holdings by the end of the first quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dumped the biggest position of all the hedgies monitored by Insider Monkey, worth about $17.4 million in stock. Steve Cohen’s fund, Point72 Asset Management, also cut its stock, about $12.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Helen of Troy Limited (NASDAQ:HELE). These stocks are Healthequity Inc (NASDAQ:HQY), BridgeBio Pharma, Inc. (NASDAQ:BBIO), eHealth, Inc. (NASDAQ:EHTH), and Tapestry, Inc. (NYSE:TPR). This group of stocks’ market valuations resemble HELE’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $518 million. That figure was $136 million in HELE’s case. Tapestry, Inc. (NYSE:TPR) is the most popular stock in this table. On the other hand BridgeBio Pharma, Inc. (NASDAQ:BBIO) is the least popular one with only 12 bullish hedge fund positions. Helen of Troy Limited (NASDAQ:HELE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on HELE as the stock returned 27% during the second quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.