“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Guess’, Inc. (NYSE:GES).
Guess’, Inc. (NYSE:GES) has experienced a decrease in hedge fund sentiment in recent months. Our calculations also showed that GES isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 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 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to view the new hedge fund action regarding Guess’, Inc. (NYSE:GES).
How are hedge funds trading Guess’, Inc. (NYSE:GES)?
Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GES over the last 16 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Guess’, Inc. (NYSE:GES), which was worth $27.6 million at the end of the second quarter. On the second spot was D E Shaw which amassed $19.2 million worth of shares. Moreover, Scopus Asset Management, Balyasny Asset Management, and Maverick Capital were also bullish on Guess’, Inc. (NYSE:GES), allocating a large percentage of their portfolios to this stock.
Seeing as Guess’, Inc. (NYSE:GES) has witnessed a decline in interest from the smart money, we can see that there was a specific group of hedge funds who were dropping their positions entirely last quarter. At the top of the heap, Steven Baughman’s Divisar Capital said goodbye to the largest investment of the 750 funds followed by Insider Monkey, valued at about $5.2 million in stock, and Mike Vranos’s Ellington was right behind this move, as the fund dropped about $3.1 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Guess’, Inc. (NYSE:GES) but similarly valued. These stocks are Cryolife Inc (NYSE:CRY), Geopark Limited (NYSE:GPRK), G1 Therapeutics, Inc. (NASDAQ:GTHX), and New Mountain Finance Corporation (NYSE:NMFC). This group of stocks’ market valuations resemble GES’s market valuation.
|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 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $85 million in GES’s case. Cryolife Inc (NYSE:CRY) is the most popular stock in this table. On the other hand Geopark Limited (NYSE:GPRK) is the least popular one with only 10 bullish hedge fund positions. Guess’, Inc. (NYSE:GES) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on GES as the stock returned 15.5% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.