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Hedge Funds Turned Their Backs On Chewy, Inc. (CHWY)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Chewy, Inc. (NYSE:CHWY) a healthy stock for your portfolio? The smart money is becoming less confident. The number of long hedge fund positions retreated by 14 recently. Our calculations also showed that CHWY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

According to most shareholders, hedge funds are viewed as unimportant, outdated financial vehicles of years past. While there are more than 8000 funds with their doors open today, We choose to focus on the elite of this club, around 750 funds. It is estimated that this group of investors preside over most of all hedge funds’ total asset base, and by keeping track of their matchless equity investments, Insider Monkey has determined numerous investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Anchorage Capital 2014 Q2 Investor Letter

Kevin Michael Ulrich of Anchorage Advisors

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the new hedge fund action encompassing Chewy, Inc. (NYSE:CHWY).

Hedge fund activity in Chewy, Inc. (NYSE:CHWY)

At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -37% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in CHWY a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CHWY_dec2019

Among these funds, Lone Pine Capital held the most valuable stake in Chewy, Inc. (NYSE:CHWY), which was worth $124.7 million at the end of the third quarter. On the second spot was Melvin Capital Management which amassed $78.7 million worth of shares. D1 Capital Partners, Anchorage Advisors, and Point72 Asset Management 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 Stormborn Capital Management allocated the biggest weight to Chewy, Inc. (NYSE:CHWY), around 2.43% of its portfolio. Anchorage Advisors is also relatively very bullish on the stock, earmarking 2.12 percent of its 13F equity portfolio to CHWY.

Due to the fact that Chewy, Inc. (NYSE:CHWY) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of hedgies who were dropping their positions entirely last quarter. It’s worth mentioning that Andreas Halvorsen’s Viking Global dumped the largest position of all the hedgies tracked by Insider Monkey, totaling about $51.5 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also said goodbye to its stock, about $18 million worth. These transactions are important to note, as total hedge fund interest dropped by 14 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Chewy, Inc. (NYSE:CHWY) but similarly valued. We will take a look at Trimble Inc. (NASDAQ:TRMB), Devon Energy Corp (NYSE:DVN), Erie Indemnity Company (NASDAQ:ERIE), and Shaw Communications Inc (NYSE:SJR). This group of stocks’ market values resemble CHWY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRMB 25 592535 9
DVN 39 1275716 3
ERIE 19 83890 7
SJR 12 270319 0
Average 23.75 555615 4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $556 million. That figure was $478 million in CHWY’s case. Devon Energy Corp (NYSE:DVN) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 12 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CHWY wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CHWY were disappointed as the stock returned 0.7% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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