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These Hedge Funds Misjudged Steven Madden, Ltd. (SHOO)

Is Steven Madden, Ltd. (NASDAQ:SHOO) 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 have 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.

Is Steven Madden, Ltd. (NASDAQ:SHOO) a buy, sell, or hold? Hedge funds are turning less bullish. The number of bullish hedge fund positions were trimmed by 4 in recent months. Our calculations also showed that SHOO isn’t among the 30 most popular stocks among hedge funds (see the video below). SHOO was in 14 hedge funds’ portfolios at the end of June. There were 18 hedge funds in our database with SHOO positions at the end of the previous quarter.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

GOTHAM ASSET MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the latest hedge fund action encompassing Steven Madden, Ltd. (NASDAQ:SHOO).

What have hedge funds been doing with Steven Madden, Ltd. (NASDAQ:SHOO)?

At Q2’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SHOO over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

SHOO_oct2019

The largest stake in Steven Madden, Ltd. (NASDAQ:SHOO) was held by Arrowstreet Capital, which reported holding $16.3 million worth of stock at the end of March. It was followed by AQR Capital Management with a $8 million position. Other investors bullish on the company included GLG Partners, Royce & Associates, and Gotham Asset Management.

Since Steven Madden, Ltd. (NASDAQ:SHOO) has experienced bearish sentiment from the smart money, it’s easy to see that there lies a certain “tier” of funds that elected to cut their entire stakes by the end of the second quarter. At the top of the heap, Mike Vranos’s Ellington cut the biggest position of the 750 funds monitored by Insider Monkey, comprising close to $1.4 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also cut its stock, about $1.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 4 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Steven Madden, Ltd. (NASDAQ:SHOO). We will take a look at Reata Pharmaceuticals, Inc. (NASDAQ:RETA), American Eagle Outfitters Inc. (NYSE:AEO), Domtar Corporation (NYSE:UFS), and Uniqure NV (NASDAQ:QURE). This group of stocks’ market caps resemble SHOO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RETA 15 287383 -3
AEO 21 348672 -4
UFS 18 139587 -1
QURE 34 892256 6
Average 22 416975 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $417 million. That figure was $48 million in SHOO’s case. Uniqure NV (NASDAQ:QURE) is the most popular stock in this table. On the other hand Reata Pharmaceuticals, Inc. (NASDAQ:RETA) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Steven Madden, Ltd. (NASDAQ:SHOO) is even less popular than RETA. Hedge funds clearly dropped the ball on SHOO as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SHOO as the stock returned 5.8% during the third quarter and outperformed the market by an even larger margin.

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

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