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The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Guess', Inc. (NYSE:GES) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Is Guess', Inc. (NYSE:GES) the right investment to pursue these days? Investors who are in the know were betting on the stock. The number of bullish hedge fund positions went up by 2 in recent months. Guess', Inc. (NYSE:GES) was in 18 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 20. Our calculations also showed that GES isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 16 hedge funds in our database with GES holdings at the end of March.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 56 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 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 stocks that are in our short portfolio.
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we're going to check out the recent hedge fund action encompassing Guess', Inc. (NYSE:GES).
What have hedge funds been doing with Guess', Inc. (NYSE:GES)?
Heading into the third quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GES over the last 20 quarters. So, let's examine 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, Richard Mashaal's Rima Senvest Management has the biggest position in Guess', Inc. (NYSE:GES), worth close to $14.9 million, accounting for 0.9% of its total 13F portfolio. The second most bullish fund manager is D. E. Shaw of D E Shaw, with a $13.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish encompass Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, Edward A. Mule's Silver Point Capital and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Prentice Capital Management allocated the biggest weight to Guess', Inc. (NYSE:GES), around 1.64% of its 13F portfolio. Silver Point Capital is also relatively very bullish on the stock, designating 1.15 percent of its 13F equity portfolio to GES.
With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Rima Senvest Management, managed by Richard Mashaal, assembled the largest position in Guess', Inc. (NYSE:GES). Rima Senvest Management had $14.9 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners also made a $11 million investment in the stock during the quarter. The following funds were also among the new GES investors: Edward A. Mule's Silver Point Capital, Michael Zimmerman's Prentice Capital Management, and Donald Sussman's Paloma Partners.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Guess', Inc. (NYSE:GES) but similarly valued. We will take a look at SMART Global Holdings, Inc. (NASDAQ:SGH), Universal Electronics Inc (NASDAQ:UEIC), Gladstone Commercial Corporation (NASDAQ:GOOD), Hyster-Yale Materials Handling Inc (NYSE:HY), Patterson-UTI Energy, Inc. (NASDAQ:PTEN), CTS Corporation (NYSE:CTS), and Hawaiian Holdings, Inc. (NASDAQ:HA). This group of stocks' market valuations resemble GES's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SGH,14,290569,-3 UEIC,11,21122,-2 GOOD,7,60196,-1 HY,11,33128,1 PTEN,26,151270,6 CTS,14,60046,5 HA,12,35650,-7 Average,13.6,93140,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $65 million in GES's case. Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is the most popular stock in this table. On the other hand Gladstone Commercial Corporation (NASDAQ:GOOD) is the least popular one with only 7 bullish hedge fund positions. Guess', Inc. (NYSE:GES) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GES is 62.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on GES as the stock returned 21.2% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.