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Did Hedge Funds Make The Right Call On The Children’s Place Inc. (PLCE)?

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 thoughtThe Children’s Place Inc. (NASDAQ:PLCE) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is The Children’s Place Inc. (NASDAQ:PLCE) a good investment today? Money managers were becoming less hopeful. The number of long hedge fund bets retreated by 7 in recent months. Our calculations also showed that PLCE 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). PLCE was in 18 hedge funds’ portfolios at the end of March. There were 25 hedge funds in our database with PLCE holdings at the end of the previous quarter.

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

TUDOR INVESTMENT CORP

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 the world 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 take a peek at the key hedge fund action surrounding The Children’s Place Inc. (NASDAQ:PLCE).

How have hedgies been trading The Children’s Place Inc. (NASDAQ:PLCE)?

Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PLCE over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PLCE A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Bruce Emery’s Greenvale Capital has the most valuable position in The Children’s Place Inc. (NASDAQ:PLCE), worth close to $25.6 million, comprising 6.7% of its total 13F portfolio. The second most bullish fund manager is Royce & Associates, led by Chuck Royce, holding a $15.1 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism include Renaissance Technologies, Michael Zimmerman’s Prentice Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Greenvale Capital allocated the biggest weight to The Children’s Place Inc. (NASDAQ:PLCE), around 6.73% of its 13F portfolio. Prentice Capital Management is also relatively very bullish on the stock, earmarking 4.06 percent of its 13F equity portfolio to PLCE.

Since The Children’s Place Inc. (NASDAQ:PLCE) has faced falling interest from the entirety of the hedge funds we track, we can see that there exists a select few fund managers who sold off their full holdings in the first quarter. Interestingly, Andrew Kurita’s Kettle Hill Capital Management dumped the largest investment of all the hedgies followed by Insider Monkey, worth close to $12.2 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also cut its stock, about $1.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 7 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Children’s Place Inc. (NASDAQ:PLCE) but similarly valued. We will take a look at Nantkwest Inc (NASDAQ:NK), MacroGenics Inc (NASDAQ:MGNX), UFP Technologies, Inc. (NASDAQ:UFPT), and Independent Bank Corporation (NASDAQ:IBCP). All of these stocks’ market caps resemble PLCE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NK 4 6187 -3
MGNX 16 34052 -1
UFPT 9 42454 -1
IBCP 12 26713 -1
Average 10.25 27352 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $94 million in PLCE’s case. MacroGenics Inc (NASDAQ:MGNX) is the most popular stock in this table. On the other hand Nantkwest Inc (NASDAQ:NK) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks The Children’s Place Inc. (NASDAQ:PLCE) 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 returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on PLCE as the stock returned 39.6% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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