We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Bed Bath & Beyond Inc. (NASDAQ:BBBY).
Bed Bath & Beyond Inc. (NASDAQ:BBBY) was in 20 hedge funds' portfolios at the end of the second quarter of 2019. BBBY investors should pay attention to a decrease in hedge fund interest of late. There were 29 hedge funds in our database with BBBY positions at the end of the previous quarter. Our calculations also showed that BBBY isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 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.
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 take a look at the fresh hedge fund action regarding Bed Bath & Beyond Inc. (NASDAQ:BBBY).
How have hedgies been trading Bed Bath & Beyond Inc. (NASDAQ:BBBY)?
At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from the first quarter of 2019. By comparison, 29 hedge funds held shares or bullish call options in BBBY a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Bed Bath & Beyond Inc. (NASDAQ:BBBY), which was worth $51.7 million at the end of the second quarter. On the second spot was AQR Capital Management which amassed $49.3 million worth of shares. Moreover, Bridgewater Associates, Legion Partners Asset Management, and Arrowstreet Capital were also bullish on Bed Bath & Beyond Inc. (NASDAQ:BBBY), allocating a large percentage of their portfolios to this stock.
Seeing as Bed Bath & Beyond Inc. (NASDAQ:BBBY) has faced declining sentiment from hedge fund managers, logic holds that there were a few funds that elected to cut their entire stakes in the second quarter. Intriguingly, Seth Wunder's Black-and-White Capital dropped the largest position of the "upper crust" of funds followed by Insider Monkey, worth close to $32.3 million in stock, and John Tompkins's Tyvor Capital was right behind this move, as the fund cut about $15.3 million worth. These moves are important to note, as total hedge fund interest fell by 9 funds in the second quarter.
Let's now take a look at hedge fund activity in other stocks similar to Bed Bath & Beyond Inc. (NASDAQ:BBBY). These stocks are Inogen Inc (NASDAQ:INGN), Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY), Hudbay Minerals Inc. (NYSE:HBM), and Heron Therapeutics Inc (NASDAQ:HRTX). This group of stocks' market values are closest to BBBY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INGN,18,149739,1 PLAY,21,331682,0 HBM,12,224548,1 HRTX,18,400466,-13 Average,17.25,276609,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $277 million. That figure was $288 million in BBBY's case. Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) is the most popular stock in this table. On the other hand Hudbay Minerals Inc. (NYSE:HBM) is the least popular one with only 12 bullish hedge fund positions. Bed Bath & Beyond Inc. (NASDAQ:BBBY) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BBBY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BBBY were disappointed as the stock returned -7% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.