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Did Hedge Funds Drop The Ball On Skechers USA Inc (SKX) ?

We can judge whether Skechers USA Inc (NYSE:SKX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Is Skechers USA Inc (NYSE:SKX) a buy right now? The best stock pickers are taking an optimistic view. The number of long hedge fund positions inched up by 5 recently. Our calculations also showed that SKX isn’t among the 30 most popular stocks among hedge funds.

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.

Izzy Englander of MILLENNIUM MANAGEMENT

We’re going to go over the key hedge fund action surrounding Skechers USA Inc (NYSE:SKX).

How are hedge funds trading Skechers USA Inc (NYSE:SKX)?

At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SKX over the last 14 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

SKX_apr2019

More specifically, AQR Capital Management was the largest shareholder of Skechers USA Inc (NYSE:SKX), with a stake worth $58.8 million reported as of the end of September. Trailing AQR Capital Management was Tremblant Capital, which amassed a stake valued at $58 million. Millennium Management, Portolan Capital Management, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, some big names were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in Skechers USA Inc (NYSE:SKX). Arrowstreet Capital had $17.4 million invested in the company at the end of the quarter. James Woodson Davis’s Woodson Capital Management also made a $13.4 million investment in the stock during the quarter. The following funds were also among the new SKX investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Zachary Miller’s Parian Global Management, and Mark Travis’s Intrepid Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Skechers USA Inc (NYSE:SKX). We will take a look at Brighthouse Financial, Inc. (NASDAQ:BHF), Esterline Technologies Corporation (NYSE:ESL), Enstar Group Ltd. (NASDAQ:ESGR), and Pinnacle Financial Partners, Inc. (NASDAQ:PNFP). All of these stocks’ market caps are similar to SKX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BHF 24 377797 2
ESL 28 569401 8
ESGR 9 497539 -1
PNFP 15 123864 2
Average 19 392150 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $392 million. That figure was $260 million in SKX’s case. Esterline Technologies Corporation (NYSE:ESL) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 9 bullish hedge fund positions. Skechers USA Inc (NYSE:SKX) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on SKX as the stock returned 30.1% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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