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Is Hanesbrands Inc. (HBI) Going to Burn These Hedge Funds?

Reymerlyn Martin

Is Hanesbrands Inc. (NYSE:HBI) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Hanesbrands Inc. (NYSE:HBI) was in 32 hedge funds' portfolios at the end of the third quarter of 2019. HBI investors should pay attention to an increase in hedge fund sentiment recently. There were 22 hedge funds in our database with HBI holdings at the end of the previous quarter. Our calculations also showed that HBI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_340081" align="aligncenter" width="600"] Phill Gross of Adage Capital Management[/caption]

Phill Gross of Adage Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the latest hedge fund action encompassing Hanesbrands Inc. (NYSE:HBI).

What have hedge funds been doing with Hanesbrands Inc. (NYSE:HBI)?

At Q3's end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 45% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in HBI a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

HBI_dec2019

The largest stake in Hanesbrands Inc. (NYSE:HBI) was held by Diamond Hill Capital, which reported holding $237.2 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $213.5 million position. Other investors bullish on the company included Arrowstreet Capital, Adage Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position 12th Street Asset Management allocated the biggest weight to Hanesbrands Inc. (NYSE:HBI), around 5.24% of its portfolio. Intrepid Capital Management is also relatively very bullish on the stock, earmarking 3.93 percent of its 13F equity portfolio to HBI.

As industrywide interest jumped, key money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, established the most outsized position in Hanesbrands Inc. (NYSE:HBI). Citadel Investment Group had $31 million invested in the company at the end of the quarter. Scott Wallace's Wallace Capital Management also made a $8.8 million investment in the stock during the quarter. The following funds were also among the new HBI investors: Cliff Asness's AQR Capital Management, Brandon Haley's Holocene Advisors, and Robert Pohly's Samlyn Capital.

Let's now review hedge fund activity in other stocks similar to Hanesbrands Inc. (NYSE:HBI). We will take a look at Curtiss-Wright Corp. (NYSE:CW), Cousins Properties Incorporated (NYSE:CUZ), Jefferies Financial Group Inc. (NYSE:JEF), and Synovus Financial Corp. (NYSE:SNV). This group of stocks' market caps resemble HBI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CW,20,391825,1 CUZ,18,185225,-4 JEF,31,627544,-3 SNV,36,461625,0 Average,26.25,416555,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $417 million. That figure was $672 million in HBI's case. Synovus Financial Corp. (NYSE:SNV) is the most popular stock in this table. On the other hand Cousins Properties Incorporated (NYSE:CUZ) is the least popular one with only 18 bullish hedge fund positions. Hanesbrands Inc. (NYSE:HBI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HBI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HBI were disappointed as the stock returned -0.7% during the fourth quarter (through the end of November) 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 so far this year.

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

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