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Did Hedge Funds Make The Right Call On Abercrombie & Fitch Co. (ANF) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtAbercrombie & Fitch Co. (NYSE:ANF) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Abercrombie & Fitch Co. (NYSE:ANF) was in 23 hedge funds’ portfolios at the end of the first quarter of 2020. ANF shareholders have witnessed a decrease in support from the world’s most elite money managers of late. There were 26 hedge funds in our database with ANF holdings at the end of the previous quarter. Our calculations also showed that ANF isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 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.

Ken Griffin CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s check out the latest hedge fund action regarding Abercrombie & Fitch Co. (NYSE:ANF).

What have hedge funds been doing with Abercrombie & Fitch Co. (NYSE:ANF)?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in ANF a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Stephen Mildenhall’s Contrarius Investment Management has the largest position in Abercrombie & Fitch Co. (NYSE:ANF), worth close to $37.3 million, amounting to 4.8% of its total 13F portfolio. Coming in second is Prentice Capital Management, managed by Michael Zimmerman, which holds a $33.4 million position; 15.8% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions consist of David Paradice’s Paradice Investment Management, Ken Griffin’s Citadel Investment Group and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Prentice Capital Management allocated the biggest weight to Abercrombie & Fitch Co. (NYSE:ANF), around 15.85% of its 13F portfolio. Contrarius Investment Management is also relatively very bullish on the stock, earmarking 4.77 percent of its 13F equity portfolio to ANF.

Judging by the fact that Abercrombie & Fitch Co. (NYSE:ANF) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few fund managers who sold off their positions entirely last quarter. Intriguingly, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors cut the largest stake of the 750 funds monitored by Insider Monkey, totaling an estimated $17 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $11.2 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Abercrombie & Fitch Co. (NYSE:ANF) but similarly valued. These stocks are SilverCrest Metals Inc. (NYSE:SILV), Repay Holdings Corporation (NASDAQ:RPAY), The York Water Company (NASDAQ:YORW), and Sonic Automotive Inc (NYSE:SAH). This group of stocks’ market valuations resemble ANF’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SILV 9 34421 -2
RPAY 8 112989 -4
YORW 11 25816 3
SAH 14 17995 -2
Average 10.5 47805 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $163 million in ANF’s case. Sonic Automotive Inc (NYSE:SAH) is the most popular stock in this table. On the other hand Repay Holdings Corporation (NASDAQ:RPAY) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Abercrombie & Fitch Co. (NYSE:ANF) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately ANF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ANF were disappointed as the stock returned 17.1% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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