At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
The Children's Place Inc. (NASDAQ:PLCE) has experienced a decrease in hedge fund interest recently. Our calculations also showed that PLCE 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 review the new 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 second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in PLCE a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Balyasny Asset Management held the most valuable stake in The Children's Place Inc. (NASDAQ:PLCE), which was worth $47.4 million at the end of the second quarter. On the second spot was Royce & Associates which amassed $45.7 million worth of shares. Moreover, Scopus Asset Management, Greenvale Capital, and Millennium Management were also bullish on The Children's Place Inc. (NASDAQ:PLCE), allocating a large percentage of their portfolios to this stock.
Because The Children's Place Inc. (NASDAQ:PLCE) has faced falling interest from the aggregate hedge fund industry, we can see that there lies a certain "tier" of hedge funds who were dropping their positions entirely heading into Q3. At the top of the heap, Mariko Gordon's Daruma Asset Management said goodbye to the biggest stake of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $28.7 million in stock. Renaissance Technologies, also sold off its stock, about $24 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds heading into Q3.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as The Children's Place Inc. (NASDAQ:PLCE) but similarly valued. We will take a look at Rent-A-Center Inc (NASDAQ:RCII), Stratasys, Ltd. (NASDAQ:SSYS), Actuant Corporation (NYSE:ATU), and AnaptysBio, Inc. (NASDAQ:ANAB). This group of stocks' market caps are closest to PLCE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RCII,18,415518,-3 SSYS,16,176378,2 ATU,12,287386,3 ANAB,16,547980,-4 Average,15.5,356816,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $357 million. That figure was $255 million in PLCE's case. Rent-A-Center Inc (NASDAQ:RCII) is the most popular stock in this table. On the other hand Actuant Corporation (NYSE:ATU) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks The Children's Place Inc. (NASDAQ:PLCE) is more popular among hedge funds. 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. Unfortunately PLCE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PLCE were disappointed as the stock returned -18.7% during the third 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.