Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. NASDAQ and Russell 2000 indices were already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points in the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Chico's FAS, Inc. (NYSE:CHS).
Is Chico's FAS, Inc. (NYSE:CHS) a healthy stock for your portfolio? Money managers are getting less optimistic. The number of bullish hedge fund bets shrunk by 4 lately. Our calculations also showed that CHS isn't among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to take a look at the key hedge fund action encompassing Chico's FAS, Inc. (NYSE:CHS).
How are hedge funds trading Chico's FAS, Inc. (NYSE:CHS)?
At Q4's end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in CHS over the last 14 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Jim Simons's Renaissance Technologies has the biggest position in Chico's FAS, Inc. (NYSE:CHS), worth close to $37.2 million, corresponding to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Cliff Asness of AQR Capital Management, with a $9.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that are bullish contain Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and John Overdeck and David Siegel's Two Sigma Advisors.
Because Chico's FAS, Inc. (NYSE:CHS) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there were a few funds that decided to sell off their full holdings heading into Q3. At the top of the heap, Ken Griffin's Citadel Investment Group sold off the biggest position of the 700 funds tracked by Insider Monkey, valued at close to $1.3 million in stock. David Costen Haley's fund, HBK Investments, also dumped its stock, about $1.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 4 funds heading into Q3.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Chico's FAS, Inc. (NYSE:CHS) but similarly valued. These stocks are Allegiance Bancshares, Inc. (NASDAQ:ABTX), Opus Bank (NASDAQ:OPB), Columbus McKinnon Corporation (NASDAQ:CMCO), and Consolidated Communications Holdings Inc (NASDAQ:CNSL). This group of stocks' market values are similar to CHS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ABTX,6,11993,-1 OPB,10,140062,1 CMCO,25,65825,5 CNSL,14,10831,4 Average,13.75,57178,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $66 million in CHS's case. Columbus McKinnon Corporation (NASDAQ:CMCO) is the most popular stock in this table. On the other hand Allegiance Bancshares, Inc. (NASDAQ:ABTX) is the least popular one with only 6 bullish hedge fund positions. Chico's FAS, Inc. (NYSE:CHS) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately CHS wasn't nearly as popular as these 15 stock and hedge funds that were betting on CHS were disappointed as the stock returned -36.4% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.