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Did Hedge Funds Drop The Ball On Caleres Inc (CAL) ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Caleres Inc (NYSE:CAL).

Is Caleres Inc (NYSE:CAL) going to take off soon? The best stock pickers are in a pessimistic mood. The number of long hedge fund positions decreased by 2 in recent months. Our calculations also showed that CAL isn’t among the 30 most popular stocks among hedge funds (see the video below). CAL was in 8 hedge funds’ portfolios at the end of June. There were 10 hedge funds in our database with CAL holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

COATUE MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the recent hedge fund action encompassing Caleres Inc (NYSE:CAL).

What have hedge funds been doing with Caleres Inc (NYSE:CAL)?

At the end of the second quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CAL over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CAL_oct2019

More specifically, Royce & Associates was the largest shareholder of Caleres Inc (NYSE:CAL), with a stake worth $18.1 million reported as of the end of March. Trailing Royce & Associates was Balyasny Asset Management, which amassed a stake valued at $9.4 million. Citadel Investment Group, D E Shaw, and Maverick Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Since Caleres Inc (NYSE:CAL) has faced declining sentiment from the smart money, it’s easy to see that there was a specific group of fund managers who sold off their positions entirely in the second quarter. It’s worth mentioning that Cliff Asness’s AQR Capital Management said goodbye to the biggest stake of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $3.7 million in stock. Renaissance Technologies, also dumped its stock, about $1.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Caleres Inc (NYSE:CAL) but similarly valued. These stocks are Goldman Sachs BDC, Inc. (NYSE:GSBD), Oritani Financial Corp. (NASDAQ:ORIT), Tivity Health, Inc. (NASDAQ:TVTY), and Myovant Sciences Ltd. (NYSE:MYOV). All of these stocks’ market caps resemble CAL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GSBD 1 3395 0
ORIT 6 36758 -1
TVTY 16 188253 -4
MYOV 8 80166 2
Average 7.75 77143 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $42 million in CAL’s case. Tivity Health, Inc. (NASDAQ:TVTY) is the most popular stock in this table. On the other hand Goldman Sachs BDC, Inc. (NYSE:GSBD) is the least popular one with only 1 bullish hedge fund positions. Caleres Inc (NYSE:CAL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on CAL as the stock returned 17.9% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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