Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Bed Bath & Beyond Inc. (NASDAQ:BBBY) investors should be aware of a decrease in enthusiasm from smart money recently. Our calculations also showed that bbby isn’t among the 30 most popular stocks among hedge funds.
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’ 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.
Let’s review the fresh hedge fund action surrounding Bed Bath & Beyond Inc. (NASDAQ:BBBY).
How have hedgies been trading Bed Bath & Beyond Inc. (NASDAQ:BBBY)?
Heading into the fourth quarter of 2018, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BBBY over the last 13 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
The largest stake in Bed Bath & Beyond Inc. (NASDAQ:BBBY) was held by Arrowstreet Capital, which reported holding $31.6 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $28.7 million position. Other investors bullish on the company included Masters Capital Management, Renaissance Technologies, and Bridgewater Associates.
Seeing as Bed Bath & Beyond Inc. (NASDAQ:BBBY) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of money managers who were dropping their positions entirely heading into Q3. Intriguingly, Kevin Michael Ulrich and Anthony Davis’s Anchorage Advisors said goodbye to the largest investment of the 700 funds followed by Insider Monkey, worth about $29.9 million in call options, and John H Lewis’s Osmium Partners was right behind this move, as the fund cut about $1.8 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds heading into Q3.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Bed Bath & Beyond Inc. (NASDAQ:BBBY) but similarly valued. We will take a look at Carrizo Oil & Gas, Inc. (NASDAQ:CRZO), Kayne Anderson MLP/Midstream Investment Company (NYSE:KYN), Atlantica Yield plc (NASDAQ:AY), and California Water Service Group (NYSE:CWT). This group of stocks’ market values match BBBY’s market value.
|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 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $148 million in BBBY’s case. Atlantica Yield plc (NASDAQ:AY) is the most popular stock in this table. On the other hand Kayne Anderson MLP Investment Company (NYSE:KYN) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Bed Bath & Beyond Inc. (NASDAQ:BBBY) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.