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Were Hedge Funds Right About Dumping G-III Apparel Group, Ltd. (GIII)?

Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is G-III Apparel Group, Ltd. (NASDAQ:GIII) worth your attention right now? Prominent investors are in a bearish mood. The number of long hedge fund bets dropped by 5 lately. Our calculations also showed that GIII isn’t among the 30 most popular stocks among hedge funds (see the video below). GIII was in 13 hedge funds’ portfolios at the end of June. There were 18 hedge funds in our database with GIII 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.

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 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.

GIII_oct2019

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 look at the new hedge fund action regarding G-III Apparel Group, Ltd. (NASDAQ:GIII).

Hedge fund activity in G-III Apparel Group, Ltd. (NASDAQ:GIII)

Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in GIII 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.

David Keidan of Buckingham Capital

David Keidan of Buckingham Capital

The largest stake in G-III Apparel Group, Ltd. (NASDAQ:GIII) was held by Buckingham Capital Management, which reported holding $17.6 million worth of stock at the end of March. It was followed by GoldenTree Asset Management with a $15.5 million position. Other investors bullish on the company included Royce & Associates, Water Street Capital, and Columbus Circle Investors.

Judging by the fact that G-III Apparel Group, Ltd. (NASDAQ:GIII) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few hedgies who were dropping their full holdings last quarter. Interestingly, Renaissance Technologies dropped the biggest stake of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $11.9 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $10.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as G-III Apparel Group, Ltd. (NASDAQ:GIII) but similarly valued. We will take a look at Hub Group Inc (NASDAQ:HUBG), TriMas Corp (NASDAQ:TRS), Brookdale Senior Living, Inc. (NYSE:BKD), and PPDAI Group Inc. (NYSE:PPDF). All of these stocks’ market caps match GIII’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HUBG 18 244748 -5
TRS 15 112396 -3
BKD 22 473004 -5
PPDF 7 9857 -5
Average 15.5 210001 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $74 million in GIII’s case. Brookdale Senior Living, Inc. (NYSE:BKD) is the most popular stock in this table. On the other hand PPDAI Group Inc. (NYSE:PPDF) is the least popular one with only 7 bullish hedge fund positions. G-III Apparel Group, Ltd. (NASDAQ:GIII) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately GIII wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GIII investors were disappointed as the stock returned -12.4% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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

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