Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.
In this article, we are going to take a closer look at The Gap Inc (NYSE:GPS), which saw a decline in popularity among smart money investors in our database last quarter. At the end of September, 28 funds were bullish on the stock, compared to 32 funds at the end of June. At the end of this article we will also compare GPS to other stocks including Snap-on Incorporated (NYSE:SNA), The Cooper Companies, Inc. (NYSE:COO), and Sunoco Logistics Partners L.P. (NYSE:SXL) to get a better sense of its popularity.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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With all of this in mind, let’s take a peek at the new action surrounding The Gap Inc (NYSE:GPS).
Hedge fund activity in The Gap Inc (NYSE:GPS)
At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, down by 13% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in GPS heading into this year. 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 publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Edward Lampert’s ESL Investments holds the most valuable position in The Gap Inc (NYSE:GPS). ESL Investments has a $56.8 million position in the stock, comprising 6.4% of its 13F portfolio. Sitting at the No. 2 spot is Jasper Ridge Partners, led by Mark Wolfson and Jamie Alexander, holding a $41.3 million position; the fund has 2.6% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions contain Israel Englander’s Millennium Management, Joel Greenblatt’s Gotham Asset Management, and David Harding’s Winton Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Due to the fact that The Gap Inc (NYSE:GPS) has faced falling interest from the smart money, it’s safe to say that there exists a select few money managers that slashed their entire stakes by the end of the third quarter. It’s worth mentioning that John A. Levin’s Levin Capital Strategies dumped the biggest position of the 700 funds studied by Insider Monkey, comprising about $53.6 million in stock. Gabriel Plotkin’s fund, Melvin Capital Management, sold all of its call options, about $31.8 million worth.
Let’s now take a look at hedge fund activity in other stocks similar to The Gap Inc (NYSE:GPS). These stocks are Snap-on Incorporated (NYSE:SNA), The Cooper Companies, Inc. (NYSE:COO), Sunoco Logistics Partners L.P. (NYSE:SXL), and Alliant Energy Corporation (NYSE:LNT). This group of stocks’ market valuations are similar to GPS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNA | 27 | 651564 | -1 |
| COO | 26 | 329471 | 5 |
| SXL | 10 | 124366 | -1 |
| LNT | 15 | 72746 | -1 |
As you can see these stocks had an average of 20 investors with bullish positions and the average amount invested in these stocks was $295 million, compared to $299 million in GPS’s case. Snap-on Incorporated (NYSE:SNA) is the most popular stock in this table. On the other hand Sunoco Logistics Partners L.P. (NYSE:SXL) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks The Gap Inc (NYSE:GPS) 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
