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With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Movado Group, Inc (NYSE:MOV).
Is Movado Group, Inc (NYSE:MOV) going to take off soon? The smart money is reducing their bets on the stock. The number of bullish hedge fund positions were trimmed by 10 lately. Our calculations also showed that MOV 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.
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 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. 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.
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Chuck Royce of Royce & Associates[/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. 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 also rely on the best performing hedge funds' buy/sell signals. Let's take a look at the key hedge fund action surrounding Movado Group, Inc (NYSE:MOV).
How have hedgies been trading Movado Group, Inc (NYSE:MOV)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -50% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in MOV a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the biggest position in Movado Group, Inc (NYSE:MOV), worth close to $7 million, accounting for less than 0.1%% of its total 13F portfolio. The second largest stake is held by Royce & Associates, managed by Chuck Royce, which holds a $6.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers that hold long positions contain John W. Rogers's Ariel Investments, Ken Griffin's Citadel Investment Group and Mario Gabelli's GAMCO Investors. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Movado Group, Inc (NYSE:MOV), around 0.06% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, setting aside 0.05 percent of its 13F equity portfolio to MOV.
Judging by the fact that Movado Group, Inc (NYSE:MOV) has experienced falling interest from hedge fund managers, logic holds that there was a specific group of funds who sold off their positions entirely heading into Q4. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the biggest stake of all the hedgies monitored by Insider Monkey, worth an estimated $2.7 million in stock. Israel Englander's fund, Millennium Management, also said goodbye to its stock, about $1.7 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 - not necessarily in the same industry as Movado Group, Inc (NYSE:MOV) but similarly valued. We will take a look at Veeco Instruments Inc. (NASDAQ:VECO), Laredo Petroleum Inc (NYSE:LPI), First Defiance Financial Corp. (NASDAQ:FDEF), and Caesarstone Ltd. (NASDAQ:CSTE). All of these stocks' market caps are closest to MOV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VECO,14,183411,3 LPI,15,129842,1 FDEF,9,40050,0 CSTE,9,27696,0 Average,11.75,95250,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $28 million in MOV's case. Laredo Petroleum Inc (NYSE:LPI) is the most popular stock in this table. On the other hand First Defiance Financial (NASDAQ:FDEF) is the least popular one with only 9 bullish hedge fund positions. Movado Group, Inc (NYSE:MOV) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 MOV wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MOV investors were disappointed as the stock returned -21.4% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.