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Hedge Fund Darlings vs. Hanesbrands Inc. (HBI) In 2019

Debasis Saha

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Hanesbrands Inc. (NYSE:HBI).

Hanesbrands Inc. (NYSE:HBI) was in 32 hedge funds' portfolios at the end of September. HBI investors should pay attention to an increase in activity from the world's largest hedge funds in recent months. There were 22 hedge funds in our database with HBI positions 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 at the end of this article for Q2 rankings).

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' 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 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 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.

[caption id="attachment_758429" align="alignnone" width="600"] Ric Dillon of Diamond Hill Capital[/caption]

Ric Dillon Diamond Hill Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. 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 already gained 20 percent. Now we're going to take a glance at the latest hedge fund action encompassing Hanesbrands Inc. (NYSE:HBI).

Hedge fund activity in Hanesbrands Inc. (NYSE:HBI)

Heading into the fourth quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 45% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HBI over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Is HBI A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ric Dillon's Diamond Hill Capital has the biggest position in Hanesbrands Inc. (NYSE:HBI), worth close to $237.2 million, comprising 1.3% of its total 13F portfolio. The second most bullish fund manager is Lyrical Asset Management, managed by Andrew Wellington and Jeff Keswin, which holds a $213.5 million position; 3.2% of its 13F portfolio is allocated to the company. Remaining peers that are bullish contain Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Phill Gross and Robert Atchinson's Adage Capital Management and Ken Griffin's 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 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, setting aside 3.93 percent of its 13F equity portfolio to HBI.

Consequently, key hedge funds 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 other funds with brand new HBI positions are Cliff Asness's AQR Capital Management, Brandon Haley's Holocene Advisors, and Robert Pohly's Samlyn Capital.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Hanesbrands Inc. (NYSE:HBI) but similarly valued. These stocks are 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 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 22% in 2019 (through December 23rd) 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. 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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