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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Chico's FAS, Inc. (NYSE:CHS) to find out whether there were any major changes in hedge funds' views.
Is CHS a good stock to buy now? Chico's FAS, Inc. (NYSE:CHS) was in 12 hedge funds' portfolios at the end of September. The all time high for this statistics is 25. CHS has experienced a decrease in hedge fund sentiment lately. There were 16 hedge funds in our database with CHS positions at the end of the second quarter. Our calculations also showed that CHS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bill Miller of Miller Value Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let's take a gander at the recent hedge fund action encompassing Chico's FAS, Inc. (NYSE:CHS).
Do Hedge Funds Think CHS Is A Good Stock To Buy Now?
At third quarter's end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in CHS a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Chico's FAS, Inc. (NYSE:CHS) was held by Renaissance Technologies, which reported holding $8 million worth of stock at the end of September. It was followed by Contrarius Investment Management with a $6.2 million position. Other investors bullish on the company included Miller Value Partners, Divisar Capital, and Millennium Management. In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to Chico's FAS, Inc. (NYSE:CHS), around 0.63% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, earmarking 0.54 percent of its 13F equity portfolio to CHS.
Judging by the fact that Chico's FAS, Inc. (NYSE:CHS) has faced falling interest from the aggregate hedge fund industry, it's safe to say that there is a sect of hedgies that slashed their positions entirely in the third quarter. At the top of the heap, John Overdeck and David Siegel's Two Sigma Advisors dropped the largest stake of all the hedgies followed by Insider Monkey, valued at an estimated $0.2 million in stock. David Andre and Astro Teller's fund, Cerebellum Capital, also dumped its stock, about $0.1 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds in the third quarter.
Let's now review hedge fund activity in other stocks similar to Chico's FAS, Inc. (NYSE:CHS). These stocks are Republic First Bancorp, Inc. (NASDAQ:FRBK), Adamas Pharmaceuticals Inc (NASDAQ:ADMS), Remark Holdings, Inc. (NASDAQ:MARK), Innovative Solutions & Support Inc (NASDAQ:ISSC), Permian Basin Royalty Trust (NYSE:PBT), Envela Corporation (NYSE:ELA), and Erytech Pharma S.A. (NASDAQ:ERYP). This group of stocks' market values are closest to CHS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FRBK,5,2577,-2 ADMS,12,28074,1 MARK,3,1343,-2 ISSC,5,5403,2 PBT,3,1010,-1 ELA,1,1782,-1 ERYP,2,4002,0 Average,4.4,6313,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.4 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $24 million in CHS's case. Adamas Pharmaceuticals Inc (NASDAQ:ADMS) is the most popular stock in this table. On the other hand Envela Corporation (NYSE:ELA) is the least popular one with only 1 bullish hedge fund positions. Chico's FAS, Inc. (NYSE:CHS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CHS is 65.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on CHS as the stock returned 67% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.