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

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Abercrombie & Fitch Co. (NYSE:ANF) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of September. At the end of this article we will also compare ANF to other stocks including AxoGen, Inc. (NASDAQ:AXGN), Ferroglobe PLC (NASDAQ:GSM), and ImmunoGen, Inc. (NASDAQ:IMGN) to get a better sense of its popularity.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.

RENAISSANCE TECHNOLOGIES

Let’s go over the latest hedge fund action surrounding Abercrombie & Fitch Co. (NYSE:ANF).

What have hedge funds been doing with Abercrombie & Fitch Co. (NYSE:ANF)?

Heading into the fourth quarter of 2018, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, representing no change from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in ANF at the beginning of this year. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

ANF_dec2018

According to Insider Monkey’s hedge fund database, Renaissance Technologies, managed by Jim Simons, holds the most valuable position in Abercrombie & Fitch Co. (NYSE:ANF). Renaissance Technologies has a $52 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $28.7 million position; 0.1% of its 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions consist of John Tompkins’s Tyvor Capital, Noam Gottesman’s GLG Partners and Robert Bishop’s Impala Asset Management.

Due to the fact that Abercrombie & Fitch Co. (NYSE:ANF) has witnessed declining sentiment from the smart money, logic holds that there lies a certain “tier” of funds who were dropping their positions entirely last quarter. At the top of the heap, Joel Greenblatt’s Gotham Asset Management said goodbye to the largest stake of the 700 funds tracked by Insider Monkey, comprising close to $6.6 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund dumped about $3.6 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Abercrombie & Fitch Co. (NYSE:ANF) but similarly valued. We will take a look at AxoGen, Inc. (NASDAQ:AXGN), Ferroglobe PLC (NASDAQ:GSM), ImmunoGen, Inc. (NASDAQ:IMGN), and Sibanye Gold Ltd (NYSE:SBGL). This group of stocks’ market valuations are similar to ANF’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AXGN 21 170982 -1
GSM 17 164584 0
IMGN 18 288017 5
SBGL 12 8798 2
Average 17 158095 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $168 million in ANF’s case. AxoGen, Inc. (NASDAQ:AXGN) is the most popular stock in this table. On the other hand Sibanye Gold Ltd (NYSE:SBGL) is the least popular one with only 12 bullish hedge fund positions. Abercrombie & Fitch Co. (NYSE:ANF) 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. In this regard AXGN might be a better candidate to consider a long position.

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

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