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Levi Strauss & Co. (LEVI): Hedge Funds In Wait-and-See Mode

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Levi Strauss & Co. (NYSE:LEVI) and determine whether the smart money was really smart about this stock.

Hedge fund interest in Levi Strauss & Co. (NYSE:LEVI) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Ralph Lauren Corporation (NYSE:RL), Lear Corporation (NYSE:LEA), and Smartsheet Inc. (NYSE:SMAR) to gather more data points. Our calculations also showed that LEVI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the latest hedge fund action encompassing Levi Strauss & Co. (NYSE:LEVI).

What have hedge funds been doing with Levi Strauss & Co. (NYSE:LEVI)?

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in LEVI over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Greenhaven Associates, managed by Edgar Wachenheim, holds the biggest position in Levi Strauss & Co. (NYSE:LEVI). Greenhaven Associates has a $9.9 million position in the stock, comprising 0.4% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, which holds a $4.8 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish encompass John Overdeck and David Siegel’s Two Sigma Advisors, Karthik Sarma’s SRS Investment Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to Levi Strauss & Co. (NYSE:LEVI), around 0.37% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, dishing out 0.18 percent of its 13F equity portfolio to LEVI.

Judging by the fact that Levi Strauss & Co. (NYSE:LEVI) has faced falling interest from hedge fund managers, it’s easy to see that there is a sect of hedgies who sold off their full holdings in the first quarter. Intriguingly, Steve Cohen’s Point72 Asset Management dumped the largest stake of all the hedgies followed by Insider Monkey, worth about $6.3 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $5.6 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Levi Strauss & Co. (NYSE:LEVI) but similarly valued. We will take a look at Ralph Lauren Corporation (NYSE:RL), Lear Corporation (NYSE:LEA), Smartsheet Inc. (NYSE:SMAR), and Westlake Chemical Corporation (NYSE:WLK). All of these stocks’ market caps are similar to LEVI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RL 26 402740 -11
LEA 28 581083 -1
SMAR 41 1678822 -3
WLK 20 111151 -2
Average 28.75 693449 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $693 million. That figure was $34 million in LEVI’s case. Smartsheet Inc. (NYSE:SMAR) is the most popular stock in this table. On the other hand Westlake Chemical Corporation (NYSE:WLK) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Levi Strauss & Co. (NYSE:LEVI) is even less popular than WLK. Hedge funds dodged a bullet by taking a bearish stance towards LEVI. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately LEVI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); LEVI investors were disappointed as the stock returned 8.5% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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