While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding The Chefs Warehouse, Inc (NASDAQ:CHEF).
The Chefs Warehouse, Inc (NASDAQ:CHEF) shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that CHEF isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to view the recent hedge fund action encompassing The Chefs Warehouse, Inc (NASDAQ:CHEF).
How have hedgies been trading The Chefs Warehouse, Inc (NASDAQ:CHEF)?
At the end of the second quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in CHEF a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies holds the biggest position in The Chefs Warehouse, Inc (NASDAQ:CHEF). Renaissance Technologies has a $44.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Millennium Management, led by Israel Englander, holding a $5.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions contain Ken Griffin’s Citadel Investment Group, Noam Gottesman’s GLG Partners and Peter Muller’s PDT Partners.
Seeing as The Chefs Warehouse, Inc (NASDAQ:CHEF) has experienced declining sentiment from hedge fund managers, logic holds that there exists a select few money managers that decided to sell off their full holdings last quarter. Interestingly, Richard Driehaus’s Driehaus Capital said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling about $7.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $0.6 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Chefs Warehouse, Inc (NASDAQ:CHEF) but similarly valued. These stocks are Endo International plc (NASDAQ:ENDP), M/A-COM Technology Solutions Holdings (NASDAQ:MTSI), Turning Point Brands, Inc. (NYSE:TPB), and Sandstorm Gold Ltd. (NYSE:SAND). This group of stocks’ market caps are similar to CHEF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ENDP | 21 | 252668 | 2 |
| MTSI | 17 | 176112 | 1 |
| TPB | 14 | 63437 | -2 |
| SAND | 15 | 61450 | 3 |
| Average | 16.75 | 138417 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $55 million in CHEF’s case. Endo International plc (NASDAQ:ENDP) is the most popular stock in this table. On the other hand Turning Point Brands, Inc. (NYSE:TPB) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks The Chefs Warehouse, Inc (NASDAQ:CHEF) is even less popular than TPB. Hedge funds clearly dropped the ball on CHEF as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on CHEF as the stock returned 15% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
