The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards The Children’s Place Inc. (NASDAQ:PLCE), and what that likely means for the prospects of the company and its stock.
The Children’s Place Inc. (NASDAQ:PLCE) has seen a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that PLCE isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to view the recent hedge fund action regarding The Children’s Place Inc. (NASDAQ:PLCE).
What have hedge funds been doing with The Children’s Place Inc. (NASDAQ:PLCE)?
At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in PLCE at the beginning of this year. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Viking Global was the largest shareholder of The Children’s Place Inc. (NASDAQ:PLCE), with a stake worth $69.9 million reported as of the end of September. Trailing Viking Global was Royce & Associates, which amassed a stake valued at $66.3 million. Marshall Wace LLP, Citadel Investment Group, and Buckingham Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since The Children’s Place Inc. (NASDAQ:PLCE) has experienced a decline in interest from hedge fund managers, it’s easy to see that there were a few fund managers that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Jim Simons’s Renaissance Technologies sold off the biggest position of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $19.2 million in stock. Alexander Mitchell’s fund, Scopus Asset Management, also dumped its stock, about $16.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to The Children’s Place Inc. (NASDAQ:PLCE). We will take a look at CNOOC Limited (NYSE:CEO), Comfort Systems USA, Inc. (NYSE:FIX), CRISPR Therapeutics AG (NASDAQ:CRSP), and Dillard’s, Inc. (NYSE:DDS). This group of stocks’ market caps resemble PLCE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CEO | 15 | 365182 | 2 |
| FIX | 22 | 207509 | 2 |
| CRSP | 16 | 172273 | -1 |
| DDS | 16 | 153752 | 0 |
| Average | 17.25 | 224679 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $225 million. That figure was $390 million in PLCE’s case. Comfort Systems USA, Inc. (NYSE:FIX) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks The Children’s Place Inc. (NASDAQ:PLCE) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
