Hedge funds are known to underperform the bull markets but that's not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds' consensus picks on average deliver market beating returns. For example in the first 9 months of this year through September 30th the Standard and Poor’s 500 Index returned approximately 20% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds' purchases. We know better. That's why we scrutinize hedge fund sentiment before we invest in a stock like Camping World Holdings, Inc. (NYSE:CWH).
Is Camping World Holdings, Inc. (NYSE:CWH) ready to rally soon? Hedge funds are becoming less hopeful. The number of long hedge fund positions shrunk by 1 in recent months. Our calculations also showed that CWH isn't among the 30 most popular stocks among hedge funds (see the video below). CWH was in 9 hedge funds' portfolios at the end of the second quarter of 2019. There were 10 hedge funds in our database with CWH positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's go over the new hedge fund action encompassing Camping World Holdings, Inc. (NYSE:CWH).
How are hedge funds trading Camping World Holdings, Inc. (NYSE:CWH)?
At Q2's end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in CWH a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Abrams Capital Management, managed by David Abrams, holds the most valuable position in Camping World Holdings, Inc. (NYSE:CWH). Abrams Capital Management has a $63.5 million position in the stock, comprising 1.7% of its 13F portfolio. The second largest stake is held by Coliseum Capital, managed by Christopher Shackelton and Adam Gray, which holds a $11.6 million position; the fund has 3.8% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism contain Noah Levy and Eugene Dozortsev's Newtyn Management, Ken Griffin's Citadel Investment Group and Chuck Royce's Royce & Associates.
Since Camping World Holdings, Inc. (NYSE:CWH) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there is a sect of hedgies that slashed their positions entirely last quarter. Intriguingly, Julian Robertson's Tiger Management sold off the biggest position of the 750 funds tracked by Insider Monkey, valued at about $7.9 million in stock, and James Thomas Berylson's Berylson Capital Partners was right behind this move, as the fund dumped about $3.7 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Camping World Holdings, Inc. (NYSE:CWH) but similarly valued. We will take a look at Xperi Corporation (NASDAQ:XPER), Enviva Partners, LP (NYSE:EVA), Playa Hotels & Resorts N.V. (NASDAQ:PLYA), and Nabors Industries Ltd. (NYSE:NBR). This group of stocks' market values match CWH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XPER,21,110729,-2 EVA,7,83902,0 PLYA,18,405569,-1 NBR,22,104959,-8 Average,17,176290,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was $107 million in CWH's case. Nabors Industries Ltd. (NYSE:NBR) is the most popular stock in this table. On the other hand Enviva Partners, LP (NYSE:EVA) is the least popular one with only 7 bullish hedge fund positions. Camping World Holdings, Inc. (NYSE:CWH) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CWH wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CWH investors were disappointed as the stock returned -27.2% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.