Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Citi Trends, Inc. (NASDAQ:CTRN)? The smart money sentiment can provide an answer to this question.
Citi Trends, Inc. (NASDAQ:CTRN) has experienced a decrease in enthusiasm from smart money in recent months. CTRN was in 12 hedge funds’ portfolios at the end of the third quarter of 2019. There were 13 hedge funds in our database with CTRN holdings at the end of the previous quarter. Our calculations also showed that CTRN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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’ 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.
Jim Simons of Renaissance Technologies
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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s view the latest hedge fund action surrounding Citi Trends, Inc. (NASDAQ:CTRN).
How are hedge funds trading Citi Trends, Inc. (NASDAQ:CTRN)?
At Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CTRN over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Citi Trends, Inc. (NASDAQ:CTRN) was held by Renaissance Technologies, which reported holding $8.6 million worth of stock at the end of September. It was followed by AQR Capital Management with a $6.8 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Royce & Associates. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Citi Trends, Inc. (NASDAQ:CTRN), around 0.07% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to CTRN.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified CTRN as a viable investment and initiated a position in the stock.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Citi Trends, Inc. (NASDAQ:CTRN) but similarly valued. These stocks are Container Store Group Inc (NYSE:TCS), Penns Woods Bancorp, Inc. (NASDAQ:PWOD), Mid Penn Bancorp (NASDAQ:MPB), and GP Strategies Corporation (NYSE:GPX). This group of stocks’ market caps match CTRN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TCS | 16 | 11667 | -2 |
| PWOD | 1 | 5741 | 0 |
| MPB | 4 | 7365 | 0 |
| GPX | 13 | 103148 | 0 |
| Average | 8.5 | 31980 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $30 million in CTRN’s case. Container Store Group Inc (NYSE:TCS) is the most popular stock in this table. On the other hand Penns Woods Bancorp, Inc. (NASDAQ:PWOD) is the least popular one with only 1 bullish hedge fund positions. Citi Trends, Inc. (NASDAQ:CTRN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CTRN as the stock returned 12.2% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
