At a time when the S&P 500 is off by 0.4%, shares of Yahoo! Inc. (NASDAQ:YHOO), Alibaba Group Holding Ltd (NYSE:BABA), Box Inc (NYSE:BOX), Ascena Retail Group Inc (NASDAQ:ASNA), and PVH Corp (NYSE:PVH) are off by considerably more. We’ll look into why investors are shedding their shares at a discount and also examine relevant hedge fund sentiment towards the stocks.
After surging by 5.7% on the news that it is considering spinning off its core-internet properties, Yahoo! Inc. (NASDAQ:YHOO) is giving back some of its gains, down by 2.97% today, as investors realize that any sale will not move the needle as much as a recovering Alibaba Group Holding Ltd (NYSE:BABA) stock would. Due to a history of under-performance, the value of Yahoo’s core internet properties is valued at less than zero by the market, after factoring in Yahoo’s stake in Yahoo Japan and Alibaba Group Holding Ltd (NYSE:BABA). If Yahoo succeeds in selling its core internet properties for anything over $1 billion, investors will be pleased, but given Yahoo’s market capitalization of $33 billion, any sale will only increase Yahoo’s economic value by 3-10% at most. At the end of the day, Yahoo is an Alibaba play, and Alibaba shares are off by over 2.45% due to the fact that the Chinese government is starting to tighten up on margin lending again. The rally in the Shanghai index is pausing because of the new government regulations, and that means Alibaba’s recent surge might decrease in intensity over the next few weeks.
Of the 730 elite funds that we track, 89 of them owned $5.47 billion worth of Yahoo! Inc. (NASDAQ:YHOO) shares at the end of September, while Alibaba was a little less popular, with 60 funds long Jack Ma’s company at the end of the third quarter.
Next up, Box Inc (NYSE:BOX) is down by 12.29% after the cloud storage company reported a loss of $0.31 per share on revenue of $78.7 million for its third quarter of fiscal year 2016. Box Inc (NYSE:BOX)’s loss was in-line with expectations while its revenue beat estimates by $1.94 million. Billings rose by 37% year-over-year to $89.4 million, while the company’s paid customer base increased to 54,000 from 50,000 quarter-over-quarter. Although revenue jumped by 37.9% year-over-year, bears have doubts about the company due to the fact that many larger competitors such as Dropbox are encroaching on Box’s turf. Partly because of the new competition, Box’s gross margin retreated to 69.9%, down from 71.8% in the second quarter of fiscal year 2016, and 78.1% in the third quarter of fiscal year 2015. Seven funds in our database owned $51.6 million worth of Box Inc (NYSE:BOX) shares on September 30, with Renaissance Technologies, founded by Jim Simons, among them.
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.6% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
On the next page, we examine why Ascena Retail Group and Barnes & Noble are lower.