We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Genesco Inc. (NYSE:GCO) and determine whether hedge funds skillfully traded this stock.
Genesco Inc. (NYSE:GCO) shareholders have witnessed a decrease in support from the world's most elite money managers of late. Our calculations also showed that GCO isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 S&P 500 ETFs by more than 58 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 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 stocks that are in our short portfolio.
[caption id="attachment_745225" align="aligncenter" width="392"] Noam Gottesman of GLG Partners[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to view the latest hedge fund action encompassing Genesco Inc. (NYSE:GCO).
What does smart money think about Genesco Inc. (NYSE:GCO)?
Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -48% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in GCO a year ago. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital has the most valuable position in Genesco Inc. (NYSE:GCO), worth close to $4.2 million, accounting for less than 0.1%% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, holding a $2.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers with similar optimism comprise Ken Griffin's Citadel Investment Group, Noam Gottesman's GLG Partners and Greg Eisner's Engineers Gate Manager. In terms of the portfolio weights assigned to each position Engineers Gate Manager allocated the biggest weight to Genesco Inc. (NYSE:GCO), around 0.03% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to GCO.
Due to the fact that Genesco Inc. (NYSE:GCO) has experienced declining sentiment from hedge fund managers, it's easy to see that there was a specific group of hedge funds that slashed their positions entirely heading into Q4. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP cut the biggest investment of the "upper crust" of funds tracked by Insider Monkey, worth close to $6.5 million in stock, and David Harding's Winton Capital Management was right behind this move, as the fund dumped about $2.8 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 10 funds heading into Q4.
Let's check out hedge fund activity in other stocks similar to Genesco Inc. (NYSE:GCO). We will take a look at Overseas Shipholding Group, Inc. (NYSE:OSG), Ruth's Hospitality Group, Inc. (NASDAQ:RUTH), Orchid Island Capital, Inc. (NYSE:ORC), and ECMOHO Limited (NASDAQ:MOHO). All of these stocks' market caps match GCO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OSG,11,42476,-1 RUTH,16,16583,2 ORC,8,11411,5 MOHO,1,94,0 Average,9,17641,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $9 million in GCO's case. Ruth's Hospitality Group, Inc. (NASDAQ:RUTH) is the most popular stock in this table. On the other hand ECMOHO Limited (NASDAQ:MOHO) is the least popular one with only 1 bullish hedge fund positions. Genesco Inc. (NYSE:GCO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on GCO as the stock returned 62.4% in Q2 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.