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Do Hedge Funds Love The Gap Inc. (GPS)?

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Is The Gap Inc. (NYSE:GPS) a buy here? Money managers are in a bullish mood. The number of long hedge fund bets improved by 1 in recent months. Our calculations also showed that gps isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Altman

Let’s view the new hedge fund action regarding The Gap Inc. (NYSE:GPS).

How have hedgies been trading The Gap Inc. (NYSE:GPS)?

At Q3’s end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the second quarter of 2018. On the other hand, there were a total of 34 hedge funds with a bullish position in GPS at the beginning of this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with GPS Positions

Among these funds, AQR Capital Management held the most valuable stake in The Gap Inc. (NYSE:GPS), which was worth $59 million at the end of the third quarter. On the second spot was Owl Creek Asset Management which amassed $22.3 million worth of shares. Moreover, GLG Partners, Citadel Investment Group, and Bridgewater Associates were also bullish on The Gap Inc. (NYSE:GPS), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, key money managers were leading the bulls’ herd. Owl Creek Asset Management, managed by Jeffrey Altman, created the most outsized position in The Gap Inc. (NYSE:GPS). Owl Creek Asset Management had $22.3 million invested in the company at the end of the quarter. Robert Pohly’s Samlyn Capital also made a $8 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Matthew Hulsizer’s PEAK6 Capital Management, and Jeffrey Talpins’s Element Capital Management.

Let’s check out hedge fund activity in other stocks similar to The Gap Inc. (NYSE:GPS). We will take a look at Huntington Ingalls Industries Inc (NYSE:HII), PVH Corp (NYSE:PVH), Tractor Supply Company (NASDAQ:TSCO), and Vail Resorts, Inc. (NYSE:MTN). This group of stocks’ market valuations match GPS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HII 26 746339 -1
PVH 44 1292262 8
TSCO 34 968657 2
MTN 30 808461 1
Average 33.5 953930 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $954 million. That figure was $202 million in GPS’s case. PVH Corp (NYSE:PVH) is the most popular stock in this table. On the other hand Huntington Ingalls Industries Inc (NYSE:HII) is the least popular one with only 26 bullish hedge fund positions. The Gap Inc. (NYSE:GPS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PVH might be a better candidate to consider a long position.

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

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