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How Did The Gap Inc. (GPS) Compare Against Top Hedge Fund Stocks in 2019?

Reymerlyn Martin

2018's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.3% in 2019 and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards The Gap Inc. (NYSE:GPS) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

The Gap Inc. (NYSE:GPS) investors should pay attention to an increase in hedge fund interest of late. Our calculations also showed that GPS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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[caption id="attachment_189632" align="aligncenter" width="600"] David Harding of Winton Capital Management[/caption]

David Harding

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let's analyze the fresh hedge fund action regarding The Gap Inc. (NYSE:GPS).

Hedge fund activity in The Gap Inc. (NYSE:GPS)

Heading into the fourth quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in GPS over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The Gap Inc. (NYSE:GPS) was held by AQR Capital Management, which reported holding $48 million worth of stock at the end of September. It was followed by Millennium Management with a $29.3 million position. Other investors bullish on the company included Winton Capital Management, Citadel Investment Group, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Cognios Capital allocated the biggest weight to The Gap Inc. (NYSE:GPS), around 0.84% of its 13F portfolio. Ellington is also relatively very bullish on the stock, setting aside 0.36 percent of its 13F equity portfolio to GPS.

As industrywide interest jumped, specific money managers were leading the bulls' herd. Laurion Capital Management, managed by Benjamin A. Smith, established the largest position in The Gap Inc. (NYSE:GPS). Laurion Capital Management had $8.2 million invested in the company at the end of the quarter. David Costen Haley's HBK Investments also initiated a $6.1 million position during the quarter. The other funds with brand new GPS positions are Renaissance Technologies, Mike Vranos's Ellington, and Paul Marshall and Ian Wace's Marshall Wace.

Let's also examine hedge fund activity in other stocks similar to The Gap Inc. (NYSE:GPS). We will take a look at The Middleby Corporation (NASDAQ:MIDD), Dolby Laboratories, Inc. (NYSE:DLB), HD Supply Holdings Inc (NASDAQ:HDS), and Charles River Laboratories International Inc. (NYSE:CRL). This group of stocks' market values resemble GPS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MIDD,23,348030,-4 DLB,27,538773,0 HDS,33,965472,3 CRL,32,875494,3 Average,28.75,681942,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $682 million. That figure was $148 million in GPS's case. HD Supply Holdings Inc (NASDAQ:HDS) is the most popular stock in this table. On the other hand The Middleby Corporation (NASDAQ:MIDD) is the least popular one with only 23 bullish hedge fund positions. The Gap Inc. (NYSE:GPS) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately GPS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GPS investors were disappointed as the stock returned -28.1% in 2019 and trailed 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 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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