Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Columbia Sportswear Company (NASDAQ:COLM).
Columbia Sportswear Company (NASDAQ:COLM) was in 23 hedge funds' portfolios at the end of December. COLM has seen a decrease in hedge fund sentiment in recent months. There were 29 hedge funds in our database with COLM positions at the end of the previous quarter. Our calculations also showed that COLM isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26388" align="aligncenter" width="400"] Lee Ainslie of Maverick Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a look at the fresh hedge fund action surrounding Columbia Sportswear Company (NASDAQ:COLM).
Hedge fund activity in Columbia Sportswear Company (NASDAQ:COLM)
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in COLM a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
The largest stake in Columbia Sportswear Company (NASDAQ:COLM) was held by AQR Capital Management, which reported holding $50.1 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $34.1 million position. Other investors bullish on the company included Arrowstreet Capital, Broad Bay Capital, and Impax Asset Management. In terms of the portfolio weights assigned to each position Broad Bay Capital allocated the biggest weight to Columbia Sportswear Company (NASDAQ:COLM), around 3.58% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, setting aside 1.71 percent of its 13F equity portfolio to COLM.
Due to the fact that Columbia Sportswear Company (NASDAQ:COLM) has witnessed bearish sentiment from hedge fund managers, it's safe to say that there were a few hedgies who sold off their full holdings by the end of the third quarter. Intriguingly, John Overdeck and David Siegel's Two Sigma Advisors sold off the largest stake of all the hedgies watched by Insider Monkey, totaling close to $13.9 million in stock, and James Dondero's Highland Capital Management was right behind this move, as the fund dropped about $2.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 6 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Columbia Sportswear Company (NASDAQ:COLM) but similarly valued. We will take a look at Skechers USA Inc (NYSE:SKX), Grupo Televisa SAB (NYSE:TV), Entegris Inc (NASDAQ:ENTG), and Reata Pharmaceuticals, Inc. (NASDAQ:RETA). This group of stocks' market valuations are closest to COLM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SKX,30,653184,2 TV,19,995016,4 ENTG,24,775840,-6 RETA,29,651033,7 Average,25.5,768768,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $769 million. That figure was $135 million in COLM's case. Skechers USA Inc (NYSE:SKX) is the most popular stock in this table. On the other hand Grupo Televisa SAB (NYSE:TV) is the least popular one with only 19 bullish hedge fund positions. Columbia Sportswear Company (NASDAQ:COLM) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately COLM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); COLM investors were disappointed as the stock returned -40% during the same time period 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 most of these stocks already outperformed the market in Q1. 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.