It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). 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. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 Fossil Group Inc (NASDAQ:FOSL).
Is Fossil Group Inc (NASDAQ:FOSL) a buy right now? Hedge funds are taking a pessimistic view. The number of long hedge fund positions retreated by 4 recently. Our calculations also showed that FOSL 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.
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. We're going to check out the recent hedge fund action surrounding Fossil Group Inc (NASDAQ:FOSL).
How are hedge funds trading Fossil Group Inc (NASDAQ:FOSL)?
At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the first quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in FOSL 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 Fossil Group Inc (NASDAQ:FOSL), which was worth $22 million at the end of the second quarter. On the second spot was D E Shaw which amassed $20.1 million worth of shares. Moreover, Gotham Asset Management, Scopia Capital, and Citadel Investment Group were also bullish on Fossil Group Inc (NASDAQ:FOSL), allocating a large percentage of their portfolios to this stock.
Seeing as Fossil Group Inc (NASDAQ:FOSL) has faced falling interest from hedge fund managers, it's easy to see that there is a sect of hedgies that elected to cut their full holdings last quarter. Intriguingly, Dmitry Balyasny's Balyasny Asset Management said goodbye to the biggest position of all the hedgies watched by Insider Monkey, totaling an estimated $2.7 million in stock, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital was right behind this move, as the fund said goodbye to about $1.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Fossil Group Inc (NASDAQ:FOSL) but similarly valued. These stocks are Ellington Financial Inc. (NYSE:EFC), Casa Systems, Inc. (NASDAQ:CASA), National CineMedia, Inc. (NASDAQ:NCMI), and Gamco Investors Inc. (NYSE:GBL). This group of stocks' market valuations are closest to FOSL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EFC,9,47666,-1 CASA,13,20586,-6 NCMI,16,39601,-2 GBL,10,10355,1 Average,12,29552,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $67 million in FOSL's case. National CineMedia, Inc. (NASDAQ:NCMI) is the most popular stock in this table. On the other hand Ellington Financial Inc. (NYSE:EFC) is the least popular one with only 9 bullish hedge fund positions. Fossil Group Inc (NASDAQ:FOSL) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on FOSL as the stock returned 8.8% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.