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Did Hedge Funds Make The Right Call On Chico’s FAS, Inc. (CHS)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Chico’s FAS, Inc. (NYSE:CHS) and determine whether hedge funds had an edge regarding this stock.

Chico’s FAS, Inc. (NYSE:CHS) has seen an increase in hedge fund interest lately. Our calculations also showed that CHS 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.

According to most shareholders, hedge funds are seen as slow, old investment vehicles of yesteryear. While there are greater than 8000 funds in operation at the moment, Our researchers choose to focus on the upper echelon of this club, around 850 funds. These hedge fund managers oversee most of all hedge funds’ total asset base, and by observing their finest investments, Insider Monkey has unearthed many investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to review the key hedge fund action regarding Chico’s FAS, Inc. (NYSE:CHS).

How have hedgies been trading Chico’s FAS, Inc. (NYSE:CHS)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CHS over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Chico’s FAS, Inc. (NYSE:CHS), which was worth $11.8 million at the end of the third quarter. On the second spot was Contrarius Investment Management which amassed $7.3 million worth of shares. Divisar Capital, Lonestar Capital Management, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lonestar Capital Management allocated the biggest weight to Chico’s FAS, Inc. (NYSE:CHS), around 2.08% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, setting aside 1.54 percent of its 13F equity portfolio to CHS.

As one would reasonably expect, specific money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, established the largest position in Chico’s FAS, Inc. (NYSE:CHS). Balyasny Asset Management had $0.1 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also made a $0.1 million investment in the stock during the quarter. The following funds were also among the new CHS investors: Brian Sheehy’s Iszo Capital, Joel Greenblatt’s Gotham Asset Management, and Michael Gelband’s ExodusPoint Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Chico’s FAS, Inc. (NYSE:CHS) but similarly valued. These stocks are Applied Optoelectronics Inc (NASDAQ:AAOI), SB One Bancorp (NASDAQ:SBBX), Chiasma Inc (NASDAQ:CHMA), and Cerecor Inc. (NASDAQ:CERC). This group of stocks’ market caps match CHS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AAOI 8 12005 -5
SBBX 6 8649 -1
CHMA 12 45011 0
CERC 5 76950 1
Average 7.75 35654 -1.25

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 $36 million. That figure was $31 million in CHS’s case. Chiasma Inc (NASDAQ:CHMA) is the most popular stock in this table. On the other hand Cerecor Inc. (NASDAQ:CERC) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Chico’s FAS, Inc. (NYSE:CHS) 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately CHS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CHS were disappointed as the stock returned 7.8% since the end of the first 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.