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Were Hedge Funds Right About Souring On Five Below Inc (FIVE)?

Nina Todic

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Five Below Inc (NASDAQ:FIVE).

Five Below Inc (NASDAQ:FIVE) has seen a decrease in enthusiasm from smart money of late. Our calculations also showed that FIVE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the 21st century investor’s toolkit there are tons of signals investors use to evaluate publicly traded companies. Two of the best signals are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the top investment managers can outperform the S&P 500 by a healthy amount (see the details here).

[caption id="attachment_25086" align="aligncenter" width="450"] Dan Loeb of Third Point[/caption]

Dan Loeb THIRD POINT

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to go over the fresh hedge fund action surrounding Five Below Inc (NASDAQ:FIVE).

What have hedge funds been doing with Five Below Inc (NASDAQ:FIVE)?

At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the second quarter of 2019. On the other hand, there were a total of 26 hedge funds with a bullish position in FIVE a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with FIVE Positions

More specifically, Third Point was the largest shareholder of Five Below Inc (NASDAQ:FIVE), with a stake worth $107.2 million reported as of the end of September. Trailing Third Point was Samlyn Capital, which amassed a stake valued at $75.5 million. Marshall Wace, Citadel Investment Group, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Pacifica Capital Investments allocated the biggest weight to Five Below Inc (NASDAQ:FIVE), around 11.44% of its portfolio. Crestwood Capital Management is also relatively very bullish on the stock, designating 5.4 percent of its 13F equity portfolio to FIVE.

Since Five Below Inc (NASDAQ:FIVE) has experienced bearish sentiment from the smart money, we can see that there exists a select few funds that slashed their full holdings in the third quarter. Interestingly, Renaissance Technologies dropped the largest stake of the 750 funds watched by Insider Monkey, worth about $64.8 million in stock. James Parsons's fund, Junto Capital Management, also cut its stock, about $51.6 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 4 funds in the third quarter.

Let's go over hedge fund activity in other stocks similar to Five Below Inc (NASDAQ:FIVE). These stocks are Hexcel Corporation (NYSE:HXL), Alteryx, Inc. (NYSE:AYX), Catalent Inc (NYSE:CTLT), and TIM Participacoes SA (NYSE:TSU). This group of stocks' market values resemble FIVE's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HXL,26,122315,3 AYX,44,1334248,6 CTLT,27,392969,7 TSU,13,290605,1 Average,27.5,535034,4.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $535 million. That figure was $469 million in FIVE's case. Alteryx, Inc. (NYSE:AYX) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 13 bullish hedge fund positions. Five Below Inc (NASDAQ:FIVE) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FIVE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FIVE were disappointed as the stock returned -1.9% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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

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