Were Hedge Funds Right About Dumping Levi Strauss & Co. (LEVI)?

Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Levi Strauss & Co. (NYSE:LEVI) from the perspective of those elite funds.

Is Levi Strauss & Co. (NYSE:LEVI) a buy, sell, or hold? Money managers are becoming less hopeful. The number of bullish hedge fund positions were cut by 10 in recent months. Our calculations also showed that LEVI isn’t among the 30 most popular stocks among hedge funds (see the video below). LEVI was in 15 hedge funds’ portfolios at the end of the second quarter of 2019. There were 25 hedge funds in our database with LEVI 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.


Unlike this former hedge fund manager 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 go over the recent hedge fund action surrounding Levi Strauss & Co. (NYSE:LEVI).

What does smart money think about Levi Strauss & Co. (NYSE:LEVI)?

At Q2’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -40% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in LEVI over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).


Among these funds, Alyeska Investment Group held the most valuable stake in Levi Strauss & Co. (NYSE:LEVI), which was worth $12.7 million at the end of the second quarter. On the second spot was Capital Growth Management which amassed $11.1 million worth of shares. Moreover, Two Sigma Advisors, Citadel Investment Group, and Laurion Capital Management were also bullish on Levi Strauss & Co. (NYSE:LEVI), allocating a large percentage of their portfolios to this stock.

Seeing as Levi Strauss & Co. (NYSE:LEVI) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of fund managers who sold off their positions entirely last quarter. Intriguingly, Jeffrey Talpins’s Element Capital Management cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $15.3 million in stock, and OZ Management was right behind this move, as the fund said goodbye to about $11.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 10 funds last quarter.

Let’s go over 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 Athene Holding Ltd. (NYSE:ATH), LKQ Corporation (NASDAQ:LKQ), Guidewire Software Inc (NYSE:GWRE), and ICON Public Limited Company (NASDAQ:ICLR). This group of stocks’ market valuations are similar to LEVI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ATH 39 1352955 4
LKQ 45 955700 2
GWRE 22 691982 -4
ICLR 19 828062 -8
Average 31.25 957175 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $957 million. That figure was $74 million in LEVI’s case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand ICON Public Limited Company (NASDAQ:ICLR) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Levi Strauss & Co. (NYSE:LEVI) is even less popular than ICLR. Hedge funds dodged a bullet by taking a bearish stance towards LEVI. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately LEVI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); LEVI investors were disappointed as the stock returned -8.8% 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.