It was a rough fourth quarter for 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. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) during the quarter below.
1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds' portfolios at the end of the fourth quarter of 2018. At the end of this article we will also compare FLWS to other stocks including China Cord Blood Corp (NYSE:CO), Granite Point Mortgage Trust Inc. (NYSE:GPMT), and Ambac Financial Group, Inc. (NASDAQ:AMBC) to get a better sense of its popularity.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to view the fresh hedge fund action encompassing 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS).
What have hedge funds been doing with 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS)?
At the end of the fourth quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards FLWS over the last 14 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) was held by AQR Capital Management, which reported holding $12.6 million worth of stock at the end of December. It was followed by GAMCO Investors with a $7.8 million position. Other investors bullish on the company included Beddow Capital Management, Nantahala Capital Management, and D E Shaw.
Due to the fact that 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) has witnessed falling interest from the smart money, it's safe to say that there was a specific group of money managers that decided to sell off their full holdings heading into Q3. Interestingly, George McCabe's Portolan Capital Management dropped the largest investment of the 700 funds watched by Insider Monkey, worth an estimated $3.3 million in stock. Philippe Laffont's fund, Coatue Management, also said goodbye to its stock, about $0.7 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) but similarly valued. We will take a look at Global Cord Blood Corporation (NYSE:CO), Granite Point Mortgage Trust Inc. (NYSE:GPMT), Ambac Financial Group, Inc. (NASDAQ:AMBC), and HealthStream, Inc. (NASDAQ:HSTM). All of these stocks' market caps are closest to FLWS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CO,7,29046,0 GPMT,6,12976,0 AMBC,17,142221,-4 HSTM,14,48729,3 Average,11,58243,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $48 million in FLWS's case. Ambac Financial Group, Inc. (NASDAQ:AMBC) is the most popular stock in this table. On the other hand Granite Point Mortgage Trust Inc. (NYSE:GPMT) is the least popular one with only 6 bullish hedge fund positions. 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on FLWS as the stock returned 53.3% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.