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Is Abercrombie & Fitch Co. (ANF) Going to Burn These Hedge Funds?

Is Abercrombie & Fitch Co. (NYSE:ANF) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Abercrombie & Fitch Co. (NYSE:ANF) was in 19 hedge funds’ portfolios at the end of September. ANF has experienced a decrease in support from the world’s most elite money managers of late. There were 26 hedge funds in our database with ANF holdings at the end of the previous quarter. Our calculations also showed that ANF 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Bill Miller

Bill Miller of Miller Value Partners

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 view the latest hedge fund action regarding Abercrombie & Fitch Co. (NYSE:ANF).

Hedge fund activity in Abercrombie & Fitch Co. (NYSE:ANF)

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from the second quarter of 2019. On the other hand, there were a total of 20 hedge funds with a bullish position in ANF a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in Abercrombie & Fitch Co. (NYSE:ANF), which was worth $14.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $9.8 million worth of shares. Divisar Capital, Miller Value Partners, and Impala 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 Divisar Capital allocated the biggest weight to Abercrombie & Fitch Co. (NYSE:ANF), around 2.65% of its 13F portfolio. Impala Asset Management is also relatively very bullish on the stock, setting aside 0.46 percent of its 13F equity portfolio to ANF.

Due to the fact that Abercrombie & Fitch Co. (NYSE:ANF) has experienced declining sentiment from the smart money, logic holds that there were a few money managers that slashed their full holdings in the third quarter. At the top of the heap, Alexander Mitchell’s Scopus Asset Management dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, valued at close to $15.2 million in call options. Israel Englander’s fund, Millennium Management, also said goodbye to its call options, about $4.7 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 7 funds in the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Abercrombie & Fitch Co. (NYSE:ANF) but similarly valued. These stocks are Bain Capital Specialty Finance, Inc. (NYSE:BCSF), Lantheus Holdings Inc (NASDAQ:LNTH), The Greenbrier Companies, Inc. (NYSE:GBX), and Boston Private Financial Hldg Inc (NASDAQ:BPFH). All of these stocks’ market caps are closest to ANF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCSF 7 38318 2
LNTH 13 101269 -2
GBX 8 21653 -6
BPFH 13 66868 0
Average 10.25 57027 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $65 million in ANF’s case. Lantheus Holdings Inc (NASDAQ:LNTH) is the most popular stock in this table. On the other hand Bain Capital Specialty Finance, Inc. (NYSE:BCSF) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Abercrombie & Fitch Co. (NYSE:ANF) is more popular among hedge funds. 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 ANF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ANF were disappointed as the stock returned 2.4% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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