How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Naked Brand Group Limited (NASDAQ:NAKD).
Is NAKD stock a buy? Hedge funds were in a bullish mood. The number of bullish hedge fund positions rose by 3 in recent months. Naked Brand Group Limited (NASDAQ:NAKD) was in 4 hedge funds’ portfolios at the end of March. The all time high for this statistic is 4. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that NAKD isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Noam Gottesman of GLG Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $27 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s take a look at the recent hedge fund action surrounding Naked Brand Group Limited (NASDAQ:NAKD).
Do Hedge Funds Think NAKD Is A Good Stock To Buy Now?
At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 300% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in NAKD over the last 23 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in Naked Brand Group Limited (NASDAQ:NAKD). Citadel Investment Group has a $0.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Magnetar Capital, led by Alec Litowitz and Ross Laser, holding a $0.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers with similar optimism contain Manoj Jain and Sohit Khurana’s Maso Capital, Noam Gottesman’s GLG Partners and . In terms of the portfolio weights assigned to each position Maso Capital allocated the biggest weight to Naked Brand Group Limited (NASDAQ:NAKD), around 0.01% of its 13F portfolio. Magnetar Capital is also relatively very bullish on the stock, earmarking 0.0006 percent of its 13F equity portfolio to NAKD.
Consequently, key money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, established the largest position in Naked Brand Group Limited (NASDAQ:NAKD). Citadel Investment Group had $0.1 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Noam Gottesman’s GLG Partners.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Naked Brand Group Limited (NASDAQ:NAKD) but similarly valued. We will take a look at Entravision Communications Corporation (NYSE:EVC), Macatawa Bank Corporation (NASDAQ:MCBC), Loop Industries, Inc. (NASDAQ:LOOP), NVE Corporation (NASDAQ:NVEC), Preformed Line Products Company (NASDAQ:PLPC), Transportadora de Gas del Sur SA (NYSE:TGS), and Tilly’s Inc (NYSE:TLYS). This group of stocks’ market values resemble NAKD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EVC | 12 | 21781 | 1 |
| MCBC | 8 | 19477 | -2 |
| LOOP | 2 | 685 | 1 |
| NVEC | 8 | 49231 | -1 |
| PLPC | 4 | 24055 | -1 |
| TGS | 7 | 10937 | 0 |
| TLYS | 15 | 45210 | 2 |
| Average | 8 | 24482 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $0 million in NAKD’s case. Tilly’s Inc (NYSE:TLYS) is the most popular stock in this table. On the other hand Loop Industries, Inc. (NASDAQ:LOOP) is the least popular one with only 2 bullish hedge fund positions. Naked Brand Group Limited (NASDAQ:NAKD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NAKD is 45.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and surpassed the market again by 3.3 percentage points. Unfortunately NAKD wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); NAKD investors were disappointed as the stock returned 4.5% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Follow Naked Brand Group Inc. (OTCMKTS:NAKD)
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Disclosure: None. This article was originally published at Insider Monkey.
