“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards The Michaels Companies Inc (NASDAQ:MIK).
The Michaels Companies Inc (NASDAQ:MIK) has seen a decrease in activity from the world’s largest hedge funds in recent months. MIK was in 21 hedge funds’ portfolios at the end of the third quarter of 2019. There were 26 hedge funds in our database with MIK holdings at the end of the previous quarter. Our calculations also showed that MIK 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.
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 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 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 stocks that are in our short portfolio.
Paul Marshall of Marshall Wace
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s review the new hedge fund action regarding The Michaels Companies Inc (NASDAQ:MIK).
What have hedge funds been doing with The Michaels Companies Inc (NASDAQ:MIK)?
At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in MIK a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in The Michaels Companies Inc (NASDAQ:MIK) was held by AQR Capital Management, which reported holding $35.4 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $23.3 million position. Other investors bullish on the company included Skylands Capital, Gotham Asset Management, and Dorset Management. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to The Michaels Companies Inc (NASDAQ:MIK), around 1.59% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, designating 0.68 percent of its 13F equity portfolio to MIK.
Due to the fact that The Michaels Companies Inc (NASDAQ:MIK) has faced falling interest from hedge fund managers, we can see that there lies a certain “tier” of funds that decided to sell off their positions entirely in the third quarter. Intriguingly, Robert Pohly’s Samlyn Capital cut the biggest investment of all the hedgies watched by Insider Monkey, comprising about $3.6 million in stock. Noam Gottesman’s fund, GLG Partners, also dropped its stock, about $2.1 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to The Michaels Companies Inc (NASDAQ:MIK). These stocks are Peabody Energy Corporation (NYSE:BTU), SFL Corporation Limited (NYSE:SFL), Groupon Inc (NASDAQ:GRPN), and Change Healthcare Inc. (NASDAQ:CHNG). This group of stocks’ market valuations resemble MIK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BTU | 31 | 725364 | 0 |
| SFL | 12 | 61459 | 1 |
| GRPN | 21 | 274180 | -3 |
| CHNG | 22 | 255472 | -7 |
| Average | 21.5 | 329119 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $329 million. That figure was $76 million in MIK’s case. Peabody Energy Corporation (NYSE:BTU) is the most popular stock in this table. On the other hand SFL Corporation Limited (NYSE:SFL) is the least popular one with only 12 bullish hedge fund positions. The Michaels Companies Inc (NASDAQ:MIK) 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 MIK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MIK investors were disappointed as the stock returned -16.4% 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.
