It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Crocs, Inc. (NASDAQ:CROX).
Crocs, Inc. (NASDAQ:CROX) shareholders have witnessed an increase in support from the world’s most elite money managers lately. Our calculations also showed that CROX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Marshall of Marshall Wace
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. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we’re going to view the new hedge fund action encompassing Crocs, Inc. (NASDAQ:CROX).
What have hedge funds been doing with Crocs, Inc. (NASDAQ:CROX)?
At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CROX over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the biggest position in Crocs, Inc. (NASDAQ:CROX), worth close to $104.1 million, comprising 0.1% of its total 13F portfolio. Coming in second is Melvin Capital Management, led by Gabriel Plotkin, holding a $58.3 million position; 0.5% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism comprise James Woodson Davis’s Woodson Capital Management, Paul Marshall and Ian Wace’s Marshall Wace and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Woodson Capital Management allocated the biggest weight to Crocs, Inc. (NASDAQ:CROX), around 8.63% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, dishing out 2.68 percent of its 13F equity portfolio to CROX.
Consequently, key hedge funds have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, established the largest position in Crocs, Inc. (NASDAQ:CROX). Melvin Capital Management had $58.3 million invested in the company at the end of the quarter. George McCabe’s Portolan Capital Management also made a $23.8 million investment in the stock during the quarter. The other funds with brand new CROX positions are Lee Ainslie’s Maverick Capital, Richard Driehaus’s Driehaus Capital, and Donald Sussman’s Paloma Partners.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Crocs, Inc. (NASDAQ:CROX) but similarly valued. These stocks are Qudian Inc. (NYSE:QD), Xencor Inc (NASDAQ:XNCR), Compass Minerals International, Inc. (NYSE:CMP), and Horace Mann Educators Corporation (NYSE:HMN). This group of stocks’ market values resemble CROX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QD | 12 | 80964 | -10 |
| XNCR | 12 | 139670 | 0 |
| CMP | 13 | 139635 | -3 |
| HMN | 13 | 35454 | 1 |
| Average | 12.5 | 98931 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $418 million in CROX’s case. Compass Minerals International, Inc. (NYSE:CMP) is the most popular stock in this table. On the other hand Qudian Inc. (NYSE:QD) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Crocs, Inc. (NASDAQ:CROX) 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. Hedge funds were also right about betting on CROX as the stock returned 61.2% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
