Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 5 months of this year through May 30th the Standard and Poor’s 500 Index returned approximately 12.1% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Canada Goose Holdings Inc. (NYSE:GOOS).
Canada Goose Holdings Inc. (NYSE:GOOS) investors should be aware of a decrease in hedge fund interest of late. Our calculations also showed that goos 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 review the fresh hedge fund action regarding Canada Goose Holdings Inc. (NYSE:GOOS).
How have hedgies been trading Canada Goose Holdings Inc. (NYSE:GOOS)?
Heading into the second quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in GOOS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Melvin Capital Management was the largest shareholder of Canada Goose Holdings Inc. (NYSE:GOOS), with a stake worth $22.8 million reported as of the end of March. Trailing Melvin Capital Management was McKinley Capital Management, which amassed a stake valued at $20.7 million. Citadel Investment Group, Sirios Capital Management, and Granite Point Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Canada Goose Holdings Inc. (NYSE:GOOS) has faced declining sentiment from hedge fund managers, it’s safe to say that there were a few hedgies that elected to cut their full holdings last quarter. At the top of the heap, Scott Bessent’s Key Square Capital Management dropped the biggest position of the “upper crust” of funds followed by Insider Monkey, totaling about $39.3 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund cut about $34.3 million worth. These moves are interesting, as total hedge fund interest fell by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Canada Goose Holdings Inc. (NYSE:GOOS) but similarly valued. These stocks are Proto Labs Inc (NYSE:PRLB), Cosan Limited (NYSE:CZZ), Glaukos Corporation (NYSE:GKOS), and Yelp Inc (NYSE:YELP). This group of stocks’ market caps are similar to GOOS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PRLB | 11 | 24095 | 1 |
| CZZ | 16 | 141039 | -2 |
| GKOS | 15 | 69093 | 4 |
| YELP | 33 | 568083 | 9 |
| Average | 18.75 | 200578 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $201 million. That figure was $122 million in GOOS’s case. Yelp Inc (NYSE:YELP) is the most popular stock in this table. On the other hand Proto Labs Inc (NYSE:PRLB) is the least popular one with only 11 bullish hedge fund positions. Canada Goose Holdings Inc. (NYSE:GOOS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 GOOS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GOOS were disappointed as the stock returned -26.2% during the same 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.
