Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Big Lots, Inc. (NYSE:BIG).
Big Lots, Inc. (NYSE:BIG) investors should pay attention to an increase in enthusiasm from smart money recently. Our calculations also showed that big 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 go over the fresh hedge fund action regarding Big Lots, Inc. (NYSE:BIG).
How have hedgies been trading Big Lots, Inc. (NYSE:BIG)?
At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in BIG a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Balyasny Asset Management, managed by Dmitry Balyasny, holds the number one position in Big Lots, Inc. (NYSE:BIG). Balyasny Asset Management has a $41.3 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $33.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions consist of John Overdeck and David Siegel’s Two Sigma Advisors, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group.
As industrywide interest jumped, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in Big Lots, Inc. (NYSE:BIG). Arrowstreet Capital had $33.1 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $4 million investment in the stock during the quarter. The following funds were also among the new BIG investors: Matthew Hulsizer’s PEAK6 Capital Management, David Costen Haley’s HBK Investments, and Steve Cohen’s Point72 Asset Management.
Let’s also examine hedge fund activity in other stocks similar to Big Lots, Inc. (NYSE:BIG). We will take a look at Mobile Mini Inc (NASDAQ:MINI), Aircastle Limited (NYSE:AYR), Vector Group Ltd (NYSE:VGR), and trivago N.V. (NASDAQ:TRVG). All of these stocks’ market caps resemble BIG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MINI | 14 | 96722 | -1 |
| AYR | 12 | 82003 | -1 |
| VGR | 22 | 171934 | 2 |
| TRVG | 11 | 120462 | -2 |
| Average | 14.75 | 117780 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $179 million in BIG’s case. Vector Group Ltd (NYSE:VGR) is the most popular stock in this table. On the other hand trivago N.V. (NASDAQ:TRVG) is the least popular one with only 11 bullish hedge fund positions. Big Lots, Inc. (NYSE:BIG) 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 BIG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BIG were disappointed as the stock returned -31.6% 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.
