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Hedge Funds Have Never Been This Bullish On Chewy, Inc. (CHWY)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Chewy, Inc. (NYSE:CHWY) and determine whether the smart money was really smart about this stock.

Is Chewy, Inc. (NYSE:CHWY) the right pick for your portfolio? Investors who are in the know were in an optimistic mood. The number of bullish hedge fund positions increased by 8 in recent months. Chewy, Inc. (NYSE:CHWY) was in 44 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CHWY 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.

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Glen Kacher of Light Street Capital

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. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind let’s go over the key hedge fund action encompassing Chewy, Inc. (NYSE:CHWY).

What have hedge funds been doing with Chewy, Inc. (NYSE:CHWY)?

Heading into the third quarter of 2020, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the first quarter of 2020. On the other hand, there were a total of 38 hedge funds with a bullish position in CHWY a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

The largest stake in Chewy, Inc. (NYSE:CHWY) was held by Tybourne Capital Management, which reported holding $127.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $91.2 million position. Other investors bullish on the company included Zevenbergen Capital Investments, Samlyn Capital, and Tiger Global Management LLC. In terms of the portfolio weights assigned to each position Berylson Capital Partners allocated the biggest weight to Chewy, Inc. (NYSE:CHWY), around 6.82% of its 13F portfolio. Rip Road Capital is also relatively very bullish on the stock, dishing out 4.96 percent of its 13F equity portfolio to CHWY.

As one would reasonably expect, key money managers were leading the bulls’ herd. Samlyn Capital, managed by Robert Pohly, established the largest position in Chewy, Inc. (NYSE:CHWY). Samlyn Capital had $44.3 million invested in the company at the end of the quarter. Glen Kacher’s Light Street Capital also initiated a $22.1 million position during the quarter. The following funds were also among the new CHWY investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Traci Lerner’s Chescapmanager LLC, and James Thomas Berylson’s Berylson Capital Partners.

Let’s check out hedge fund activity in other stocks similar to Chewy, Inc. (NYSE:CHWY). We will take a look at Delta Air Lines, Inc. (NYSE:DAL), Fortis Inc. (NYSE:FTS), PG&E Corporation (NYSE:PCG), Slack Technologies Inc (NYSE:WORK), Akamai Technologies, Inc. (NASDAQ:AKAM), Ameren Corporation (NYSE:AEE), and Interactive Brokers Group, Inc. (NASDAQ:IBKR). This group of stocks’ market caps resemble CHWY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DAL 39 864778 -14
FTS 8 379313 -7
PCG 92 4871702 44
WORK 32 287493 1
AKAM 40 548791 0
AEE 19 474360 -2
IBKR 32 695740 10
Average 37.4 1160311 4.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.4 hedge funds with bullish positions and the average amount invested in these stocks was $1160 million. That figure was $570 million in CHWY’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Fortis Inc. (NYSE:FTS) is the least popular one with only 8 bullish hedge fund positions. Chewy, Inc. (NYSE:CHWY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CHWY is 61.4. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on CHWY as the stock returned 36.7% since Q2 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.