Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ).
Is BJ stock a buy or sell? Hedge fund interest in BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that BJ isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare BJ to other stocks including InVitae Corporation (NYSE:NVTA), Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), and Huntington Ingalls Industries Inc (NYSE:HII) to get a better sense of its popularity.
Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to analyze the recent hedge fund action regarding BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ).
Do Hedge Funds Think BJ Is A Good Stock To Buy Now?
At the end of September, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in BJ 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.
The largest stake in BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) was held by Renaissance Technologies, which reported holding $66.9 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $45.5 million position. Other investors bullish on the company included DSAM Partners, Millennium Management, and GLG Partners. In terms of the portfolio weights assigned to each position DSAM Partners allocated the biggest weight to BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ), around 4.68% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, dishing out 2.72 percent of its 13F equity portfolio to BJ.
Since BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) has witnessed falling interest from the smart money, it’s safe to say that there lies a certain “tier” of hedgies who were dropping their entire stakes last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest position of all the hedgies watched by Insider Monkey, valued at an estimated $15.7 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also said goodbye to its stock, about $9.3 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ). These stocks are InVitae Corporation (NYSE:NVTA), Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI), Huntington Ingalls Industries Inc (NYSE:HII), Vertiv Holdings Co (NYSE:VRT), Healthcare Trust Of America Inc (NYSE:HTA), First American Financial Corp (NYSE:FAF), and Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS). All of these stocks’ market caps are similar to BJ’s market cap.
|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 30 hedge funds with bullish positions and the average amount invested in these stocks was $536 million. That figure was $260 million in BJ’s case. Vertiv Holdings Co (NYSE:VRT) is the most popular stock in this table. On the other hand Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS) is the least popular one with only 11 bullish hedge fund positions. BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BJ is 58.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and beat the market again by 16.4 percentage points. Unfortunately BJ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BJ were disappointed as the stock returned -7.8% since the end of September (through 12/18) 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.