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Hedge Funds Have Never Been This Bullish On Five Below Inc (FIVE)

Reymerlyn Martin

Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 18.7% compared to 12.1%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.

Five Below Inc (NASDAQ:FIVE) has seen an increase in activity from the world's largest hedge funds lately. FIVE was in 38 hedge funds' portfolios at the end of March. There were 32 hedge funds in our database with FIVE holdings at the end of the previous quarter. Our calculations also showed that FIVE isn't among the 30 most popular stocks among hedge funds.

According to most stock holders, hedge funds are viewed as worthless, old investment vehicles of the past. While there are over 8000 funds in operation today, We look at the aristocrats of this club, around 750 funds. These hedge fund managers administer the majority of the smart money's total capital, and by keeping an eye on their inimitable picks, Insider Monkey has spotted various investment strategies that have historically outrun Mr. Market. Insider Monkey's flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points per year since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.

AQR CAPITAL MANAGEMENT

We're going to take a glance at the recent hedge fund action surrounding Five Below Inc (NASDAQ:FIVE).

How are hedge funds trading Five Below Inc (NASDAQ:FIVE)?

At the end of the first quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in FIVE over the last 15 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 meaningfully (or already accumulated large positions).

FIVE_jun2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the biggest position in Five Below Inc (NASDAQ:FIVE). Renaissance Technologies has a $99.5 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $71.1 million position; 0.2% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish include Steve Cohen's Point72 Asset Management, Israel Englander's Millennium Management and Cliff Asness's AQR Capital Management.

Consequently, key hedge funds have jumped into Five Below Inc (NASDAQ:FIVE) headfirst. Hitchwood Capital Management, managed by James Crichton, created the most valuable position in Five Below Inc (NASDAQ:FIVE). Hitchwood Capital Management had $23.6 million invested in the company at the end of the quarter. Alexander Mitchell's Scopus Asset Management also made a $15.1 million investment in the stock during the quarter. The other funds with brand new FIVE positions are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Paul Tudor Jones's Tudor Investment Corp, and Benjamin A. Smith's Laurion Capital Management.

Let's check out hedge fund activity in other stocks similar to Five Below Inc (NASDAQ:FIVE). These stocks are Teradyne, Inc. (NASDAQ:TER), Alaska Air Group, Inc. (NYSE:ALK), Capri Holdings Limited (NYSE:CPRI), and Douglas Emmett, Inc. (NYSE:DEI). This group of stocks' market values resemble FIVE's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TER,24,564379,-1 ALK,20,466021,-12 CPRI,37,1222168,4 DEI,14,363321,2 Average,23.75,653972,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $654 million. That figure was $488 million in FIVE's case. Capri Holdings Limited (NYSE:CPRI) is the most popular stock in this table. On the other hand Douglas Emmett, Inc. (NYSE:DEI) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Five Below Inc (NASDAQ:FIVE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on FIVE as the stock returned 4.1% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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