At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards PVH Corp (NYSE:PVH) at the end of the second quarter and determine whether the smart money was really smart about this stock.
PVH Corp (NYSE:PVH) was in 28 hedge funds’ portfolios at the end of June. The all time high for this statistics is 44. PVH has experienced an increase in hedge fund sentiment in recent months. There were 18 hedge funds in our database with PVH positions at the end of the first quarter. Our calculations also showed that PVH isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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 56 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to analyze the key hedge fund action encompassing PVH Corp (NYSE:PVH).
What have hedge funds been doing with PVH Corp (NYSE:PVH)?
At second quarter’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 56% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PVH over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Richard S. Pzena’s Pzena Investment Management has the most valuable position in PVH Corp (NYSE:PVH), worth close to $292.9 million, accounting for 1.9% of its total 13F portfolio. Coming in second is Andreas Halvorsen of Viking Global, with a $73.2 million position; 0.3% of its 13F portfolio is allocated to the company. Other peers with similar optimism comprise Cliff Asness’s AQR Capital Management, D. E. Shaw’s D E Shaw and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position MIK Capital allocated the biggest weight to PVH Corp (NYSE:PVH), around 2.1% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, earmarking 1.91 percent of its 13F equity portfolio to PVH.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Viking Global, managed by Andreas Halvorsen, established the biggest position in PVH Corp (NYSE:PVH). Viking Global had $73.2 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $11.7 million position during the quarter. The following funds were also among the new PVH investors: Kamyar Khajavi’s MIK Capital, David Einhorn’s Greenlight Capital, and Lee Ainslie’s Maverick Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as PVH Corp (NYSE:PVH) but similarly valued. We will take a look at Coty Inc (NYSE:COTY), Seaboard Corporation (NYSE:SEB), Semtech Corporation (NASDAQ:SMTC), Change Healthcare Inc. (NASDAQ:CHNG), NeoGenomics, Inc. (NASDAQ:NEO), bluebird bio Inc (NASDAQ:BLUE), and Enstar Group Ltd. (NASDAQ:ESGR). This group of stocks’ market caps are similar to PVH’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.7 hedge funds with bullish positions and the average amount invested in these stocks was $330 million. That figure was $475 million in PVH’s case. Change Healthcare Inc. (NASDAQ:CHNG) is the most popular stock in this table. On the other hand Enstar Group Ltd. (NASDAQ:ESGR) is the least popular one with only 12 bullish hedge fund positions. PVH Corp (NYSE:PVH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PVH is 51.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on PVH as the stock returned 28% during Q3 (through September 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.