Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% last year. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like PVH Corp (NYSE:PVH).
PVH Corp (NYSE:PVH) investors should pay attention to a decrease in hedge fund sentiment lately. Our calculations also showed that PVH 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).
Why do we pay any attention at all to hedge fund sentiment? 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_338852" align="aligncenter" width="500"] Richard S. Pzena of Pzena Investment Management[/caption]
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 check out the key hedge fund action encompassing PVH Corp (NYSE:PVH).
How are hedge funds trading PVH Corp (NYSE:PVH)?
Heading into the fourth quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from one quarter earlier. By comparison, 44 hedge funds held shares or bullish call options in PVH a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Pzena Investment Management, managed by Richard S. Pzena, holds the most valuable position in PVH Corp (NYSE:PVH). Pzena Investment Management has a $454.3 million position in the stock, comprising 2.5% of its 13F portfolio. Sitting at the No. 2 spot is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which holds a $105.1 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining peers that hold long positions consist of Cliff Asness's AQR Capital Management, David E. Shaw's D E Shaw and Ryan Frick and Oliver Evans's Dorsal Capital Management. In terms of the portfolio weights assigned to each position Dorsal Capital Management allocated the biggest weight to PVH Corp (NYSE:PVH), around 3.74% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, dishing out 2.47 percent of its 13F equity portfolio to PVH.
Judging by the fact that PVH Corp (NYSE:PVH) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there were a few fund managers who were dropping their positions entirely heading into Q4. At the top of the heap, Israel Englander's Millennium Management said goodbye to the largest investment of the 750 funds tracked by Insider Monkey, comprising close to $47.3 million in stock. Gregg Moskowitz's fund, Interval Partners, also said goodbye to its stock, about $32.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 5 funds heading into Q4.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as PVH Corp (NYSE:PVH) but similarly valued. We will take a look at Signature Bank (NASDAQ:SBNY), New Residential Investment Corp (NYSE:NRZ), The Gap Inc. (NYSE:GPS), and The Middleby Corporation (NASDAQ:MIDD). This group of stocks' market values match PVH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBNY,32,502279,3 NRZ,19,141891,3 GPS,25,148276,4 MIDD,23,348030,-4 Average,24.75,285119,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $285 million. That figure was $1028 million in PVH's case. Signature Bank (NASDAQ:SBNY) is the most popular stock in this table. On the other hand New Residential Investment Corp (NYSE:NRZ) is the least popular one with only 19 bullish hedge fund positions. PVH Corp (NYSE:PVH) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately PVH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PVH were disappointed as the stock returned 13.3% 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 many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.