Were Hedge Funds Right About G-III Apparel Group (GIII)?
We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about G-III Apparel Group, Ltd. (NASDAQ:GIII) in this article.
G-III Apparel Group, Ltd. (NASDAQ:GIII) has experienced an increase in activity from the world's largest hedge funds recently. Our calculations also showed that GIII 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).
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 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 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.
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Steven Cohen of Point72 Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager's coronavirus analysis). 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 we're going to check out the new hedge fund action encompassing G-III Apparel Group, Ltd. (NASDAQ:GIII).
How have hedgies been trading G-III Apparel Group, Ltd. (NASDAQ:GIII)?
At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 46% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in GIII a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in G-III Apparel Group, Ltd. (NASDAQ:GIII) was held by Royce & Associates, which reported holding $25.4 million worth of stock at the end of September. It was followed by Scopus Asset Management with a $22.6 million position. Other investors bullish on the company included Candlestick Capital Management, Citadel Investment Group, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position AREX Capital Management allocated the biggest weight to G-III Apparel Group, Ltd. (NASDAQ:GIII), around 5.33% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, setting aside 2.22 percent of its 13F equity portfolio to GIII.
Consequently, key money managers were breaking ground themselves. Scopus Asset Management, managed by Alexander Mitchell, established the biggest position in G-III Apparel Group, Ltd. (NASDAQ:GIII). Scopus Asset Management had $22.6 million invested in the company at the end of the quarter. Jack Woodruff's Candlestick Capital Management also initiated a $13.4 million position during the quarter. The other funds with new positions in the stock are Andrew Rechtschaffen's AREX Capital Management, Brian Scudieri's Kehrs Ridge Capital, and Steve Cohen's Point72 Asset Management.
Let's go over hedge fund activity in other stocks similar to G-III Apparel Group, Ltd. (NASDAQ:GIII). We will take a look at GreenSky, Inc. (NASDAQ:GSKY), Arvinas, Inc. (NASDAQ:ARVN), Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), and Calavo Growers, Inc. (NASDAQ:CVGW). This group of stocks' market caps are closest to GIII's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSKY,12,36683,-4 ARVN,26,473211,14 MDRX,31,209934,11 CVGW,23,155923,3 Average,23,218938,6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $219 million. That figure was $120 million in GIII's case. Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) is the most popular stock in this table. On the other hand GreenSky, Inc. (NASDAQ:GSKY) is the least popular one with only 12 bullish hedge fund positions. G-III Apparel Group, Ltd. (NASDAQ:GIII) 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately GIII wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GIII investors were disappointed as the stock returned -77.8% 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 2020.
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.
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