Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. What do these smart investors think about Ross Stores, Inc. (NASDAQ:ROST)?
Is Ross Stores, Inc. (NASDAQ:ROST) a marvelous investment today? The smart money is turning bullish. The number of long hedge fund positions improved by 7 in recent months. Our calculations also showed that ROST isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a look at the new hedge fund action regarding Ross Stores, Inc. (NASDAQ:ROST).
What have hedge funds been doing with Ross Stores, Inc. (NASDAQ:ROST)?
Heading into the fourth quarter of 2019, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ROST over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Ross Stores, Inc. (NASDAQ:ROST), with a stake worth $227.8 million reported as of the end of September. Trailing AQR Capital Management was BlueSpruce Investments, which amassed a stake valued at $159.2 million. D E Shaw, Renaissance Technologies, and Alyeska Investment Group 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 BlueSpruce Investments allocated the biggest weight to Ross Stores, Inc. (NASDAQ:ROST), around 6.13% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, setting aside 4.7 percent of its 13F equity portfolio to ROST.
As aggregate interest increased, some big names have jumped into Ross Stores, Inc. (NASDAQ:ROST) headfirst. Junto Capital Management, managed by James Parsons, created the largest position in Ross Stores, Inc. (NASDAQ:ROST). Junto Capital Management had $48.2 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $25.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace, Sander Gerber’s Hudson Bay Capital Management, and Israel Englander’s Millennium Management.
Let’s also examine hedge fund activity in other stocks similar to Ross Stores, Inc. (NASDAQ:ROST). These stocks are Constellation Brands, Inc. (NYSE:STZ), Telefonica S.A. (NYSE:TEF), ICICI Bank Limited (NYSE:IBN), and Mizuho Financial Group Inc. (NYSE:MFG). All of these stocks’ market caps are closest to ROST’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| STZ | 41 | 1671280 | 3 |
| TEF | 5 | 34830 | -2 |
| IBN | 26 | 849426 | -3 |
| MFG | 4 | 14381 | -2 |
| Average | 19 | 642479 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $642 million. That figure was $1067 million in ROST’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 4 bullish hedge fund positions. Ross Stores, Inc. (NASDAQ:ROST) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on ROST, though not to the same extent, as the stock returned 38.6% during 2019 (as of 12/23) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
