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Were Hedge Funds Right About Piling Into PVH Corp (PVH)?

Reymerlyn Martin

Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

PVH Corp (NYSE:PVH) shareholders have witnessed a decrease in hedge fund sentiment recently. PVH was in 35 hedge funds' portfolios at the end of December. There were 44 hedge funds in our database with PVH holdings at the end of the previous quarter. Overall hedge fund sentiment towards the stock is still very bullish though.

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 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.

Phill Gross, Adage Capital Management

Let's take a glance at the fresh hedge fund action encompassing PVH Corp (NYSE:PVH).

What does the smart money think about PVH Corp (NYSE:PVH)?

Heading into the first quarter of 2019, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in PVH a year ago. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

PVH_apr2019

More specifically, D E Shaw was the largest shareholder of PVH Corp (NYSE:PVH), with a stake worth $149.2 million reported as of the end of September. Trailing D E Shaw was Renaissance Technologies, which amassed a stake valued at $121 million. AQR Capital Management, Citadel Investment Group, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that PVH Corp (NYSE:PVH) has witnessed bearish sentiment from the smart money, logic holds that there lies a certain "tier" of hedge funds that elected to cut their full holdings in the third quarter. At the top of the heap, Alexander Mitchell's Scopus Asset Management dropped the largest position of the 700 funds tracked by Insider Monkey, comprising close to $72.2 million in stock. Louis Bacon's fund, Moore Global Investments, also cut its stock, about $71.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 9 funds in the third quarter.

Let's also examine hedge fund activity in other stocks similar to PVH Corp (NYSE:PVH). These stocks are Western Gas Partners, LP (NYSE:WES), ICON Public Limited Company (NASDAQ:ICLR), MGM Growth Properties LLC (NYSE:MGP), and Formula One Group (NASDAQ:FWONA). This group of stocks' market values resemble PVH's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WES,6,53279,-2 ICLR,23,461592,1 MGP,12,151955,-3 FWONA,19,271792,-2 Average,15,234655,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $235 million. That figure was $815 million in PVH's case. ICON Public Limited Company (NASDAQ:ICLR) is the most popular stock in this table. On the other hand Western Gas Partners, LP (NYSE:WES) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks PVH Corp (NYSE:PVH) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on PVH as the stock returned 37.1% and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

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