The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Levi Strauss & Co. (NYSE:LEVI) and find out how it is affected by hedge funds’ moves.
Levi Strauss & Co. (NYSE:LEVI) was in 10 hedge funds’ portfolios at the end of the third quarter of 2019. LEVI has seen a decrease in hedge fund interest lately. There were 15 hedge funds in our database with LEVI positions at the end of the previous quarter. Our calculations also showed that LEVI 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.
Sander Gerber of Hudson Bay Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a glance at the recent hedge fund action surrounding Levi Strauss & Co. (NYSE:LEVI).
Hedge fund activity in Levi Strauss & Co. (NYSE:LEVI)
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in LEVI a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Balyasny Asset Management held the most valuable stake in Levi Strauss & Co. (NYSE:LEVI), which was worth $8.4 million at the end of the third quarter. On the second spot was SRS Investment Management which amassed $5.7 million worth of shares. GLG Partners, Marshall Wace, and Hudson Bay 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 SRS Investment Management allocated the biggest weight to Levi Strauss & Co. (NYSE:LEVI), around 0.15% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, designating 0.12 percent of its 13F equity portfolio to LEVI.
Because Levi Strauss & Co. (NYSE:LEVI) has experienced declining sentiment from the smart money, it’s easy to see that there exists a select few hedgies who sold off their entire stakes heading into Q4. At the top of the heap, Anand Parekh’s Alyeska Investment Group dumped the biggest position of the 750 funds monitored by Insider Monkey, comprising about $12.7 million in stock, and Ken Heebner’s Capital Growth Management was right behind this move, as the fund dumped about $11.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks similar to Levi Strauss & Co. (NYSE:LEVI). These stocks are Qiagen NV (NYSE:QGEN), Tapestry, Inc. (NYSE:TPR), James Hardie Industries plc (NYSE:JHX), and BRF S.A. (NYSE:BRFS). This group of stocks’ market values are similar to LEVI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QGEN | 22 | 277049 | -3 |
| TPR | 24 | 385305 | -8 |
| JHX | 2 | 6880 | 0 |
| BRFS | 14 | 116226 | 1 |
| Average | 15.5 | 196365 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $22 million in LEVI’s case. Tapestry, Inc. (NYSE:TPR) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 2 bullish hedge fund positions. Levi Strauss & Co. (NYSE:LEVI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LEVI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LEVI investors were disappointed as the stock returned -11.2% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
