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Where Do Hedge Funds Stand On Five Below Inc (FIVE)?

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  • FIVE

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 873 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 30th holdings, data that is available nowhere else. Should you consider Five Below Inc (NASDAQ:FIVE) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Five Below Inc (NASDAQ:FIVE) has experienced a decrease in support from the world's most elite money managers in recent months. Five Below Inc (NASDAQ:FIVE) was in 42 hedge funds' portfolios at the end of June. The all time high for this statistic is 44. Our calculations also showed that FIVE isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by 79 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.

CHILTON INVESTMENT COMPANY
CHILTON INVESTMENT COMPANY

Richard Chilton of Chilton Investment Company

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to analyze the new hedge fund action regarding Five Below Inc (NASDAQ:FIVE).

Do Hedge Funds Think FIVE Is A Good Stock To Buy Now?

At second quarter's end, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FIVE over the last 24 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Is FIVE A Good Stock To Buy?
Is FIVE A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the number one position in Five Below Inc (NASDAQ:FIVE). Arrowstreet Capital has a $94 million position in the stock, comprising 0.1% of its 13F portfolio. On Arrowstreet Capital's heels is Chilton Investment Company, led by Richard Chilton, holding a $88.6 million position; 2.2% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism include Ken Griffin's Citadel Investment Group, Brett Barakett's Tremblant Capital and Steve Leonard's Pacifica Capital Investments. In terms of the portfolio weights assigned to each position Pacifica Capital Investments allocated the biggest weight to Five Below Inc (NASDAQ:FIVE), around 21.37% of its 13F portfolio. Aravt Global is also relatively very bullish on the stock, designating 8.38 percent of its 13F equity portfolio to FIVE.

Since Five Below Inc (NASDAQ:FIVE) has experienced falling interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedge funds that slashed their full holdings in the second quarter. It's worth mentioning that Louis Bacon's Moore Global Investments cut the largest investment of the 750 funds tracked by Insider Monkey, worth close to $23.8 million in stock. Steven Boyd's fund, Armistice Capital, also dumped its stock, about $12.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds in the second quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Five Below Inc (NASDAQ:FIVE) but similarly valued. We will take a look at LPL Financial Holdings Inc (NASDAQ:LPLA), Gaming and Leisure Properties Inc (NASDAQ:GLPI), Jazz Pharmaceuticals Plc (NASDAQ:JAZZ), Cleveland-Cliffs Inc (NYSE:CLF), Maravai LifeSciences Holdings, Inc. (NASDAQ:MRVI), Marathon Oil Corporation (NYSE:MRO), and PRA Health Sciences Inc (NASDAQ:PRAH). This group of stocks' market valuations match FIVE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LPLA,48,1500930,10 GLPI,27,515879,-1 JAZZ,34,1493732,-3 CLF,44,1111037,8 MRVI,20,572985,-6 MRO,34,655729,5 PRAH,43,2995527,8 Average,35.7,1263688,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.7 hedge funds with bullish positions and the average amount invested in these stocks was $1264 million. That figure was $783 million in FIVE's case. LPL Financial Holdings Inc (NASDAQ:LPLA) is the most popular stock in this table. On the other hand Maravai LifeSciences Holdings, Inc. (NASDAQ:MRVI) is the least popular one with only 20 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. Our overall hedge fund sentiment score for FIVE is 71.9. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately FIVE wasn't nearly as popular as these 5 stocks and hedge funds that were betting on FIVE were disappointed as the stock returned -10.2% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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