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Is Big Lots, Inc. (BIG) Going To Burn These Hedge Funds ?

Nina Todic

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Big Lots, Inc. (NYSE:BIG) and see how the stock is affected by the recent hedge fund activity.

Big Lots, Inc. (NYSE:BIG) was in 21 hedge funds' portfolios at the end of September. BIG investors should be aware of an increase in hedge fund sentiment in recent months. There were 20 hedge funds in our database with BIG positions at the end of the previous quarter. Our calculations also showed that BIG 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.

5 Most Popular Stocks Among Hedge Funds

To the average investor there are several formulas shareholders have at their disposal to evaluate publicly traded companies. Two of the best formulas are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the top hedge fund managers can trounce their index-focused peers by a healthy amount (see the details here).

[caption id="attachment_256989" align="aligncenter" width="450"] Dmitry Balyasny of Balyasny Asset Managemnet[/caption]

Dmitry Balyasny of Balyasny Asset Managemnet

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 go over the latest hedge fund action surrounding Big Lots, Inc. (NYSE:BIG).

How are hedge funds trading Big Lots, Inc. (NYSE:BIG)?

Heading into the fourth quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BIG over the last 17 quarters. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

More specifically, Arrowstreet Capital was the largest shareholder of Big Lots, Inc. (NYSE:BIG), with a stake worth $30 million reported as of the end of September. Trailing Arrowstreet Capital was Millennium Management, which amassed a stake valued at $10.2 million. Balyasny Asset Management, Citadel Investment Group, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position PDT Partners allocated the biggest weight to Big Lots, Inc. (NYSE:BIG), around 0.24% of its 13F portfolio. Cerebellum Capital is also relatively very bullish on the stock, earmarking 0.11 percent of its 13F equity portfolio to BIG.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. PEAK6 Capital Management, managed by Matthew Hulsizer, initiated the biggest position in Big Lots, Inc. (NYSE:BIG). PEAK6 Capital Management had $2.3 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $1.1 million investment in the stock during the quarter. The following funds were also among the new BIG investors: Mike Vranos's Ellington and David Andre and Astro Teller's Cerebellum Capital.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Big Lots, Inc. (NYSE:BIG) but similarly valued. We will take a look at 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), Caleres Inc (NYSE:CAL), Valaris plc (NYSE:VAL), and OneSpaWorld Holdings Limited (NASDAQ:OSW). This group of stocks' market valuations match BIG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FLWS,20,64087,-1 CAL,15,75737,7 VAL,18,172771,-10 OSW,8,68378,-3 Average,15.25,95243,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $82 million in BIG's case. 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) is the most popular stock in this table. On the other hand OneSpaWorld Holdings Limited (NASDAQ:OSW) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Big Lots, Inc. (NYSE:BIG) is more popular among hedge funds. 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 BIG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BIG were disappointed as the stock returned -14.7% 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.

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