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Were Hedge Funds Right About Dumping Movado Group, Inc (MOV) ?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 15 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 1% through March 15th whereas the S&P 500 Index ETF lost 2.2% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Movado Group, Inc (NYSE:MOV) from the perspective of those elite funds.

Movado Group, Inc (NYSE:MOV) has seen a decrease in enthusiasm from smart money lately. Our calculations also showed that MOV isn’t among the 30 most popular stocks among hedge funds.

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 32 percentage points since May 2014 through March 12, 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.

Sander Gerber of Hudson Bay Capital

We’re going to review the latest hedge fund action regarding Movado Group, Inc (NYSE:MOV).

How have hedgies been trading Movado Group, Inc (NYSE:MOV)?

At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in MOV a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

MOV_may2019

More specifically, Driehaus Capital was the largest shareholder of Movado Group, Inc (NYSE:MOV), with a stake worth $10 million reported as of the end of December. Trailing Driehaus Capital was Renaissance Technologies, which amassed a stake valued at $8.9 million. Winton Capital Management, AQR Capital Management, and Royce & Associates were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Movado Group, Inc (NYSE:MOV) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of money managers that decided to sell off their positions entirely by the end of the third quarter. At the top of the heap, Israel Englander’s Millennium Management dropped the largest investment of the 700 funds tracked by Insider Monkey, totaling close to $8.2 million in stock, and Ernest Chow and Jonathan Howe’s Sensato Capital Management was right behind this move, as the fund said goodbye to about $2 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Movado Group, Inc (NYSE:MOV). These stocks are Falcon Minerals Corporation (NASDAQ:FLMN), H&E Equipment Services, Inc. (NASDAQ:HEES), Ehi Car Services Ltd (NYSE:EHIC), and General American Investors, Inc. (NYSE:GAM). All of these stocks’ market caps match MOV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FLMN 18 187846 1
HEES 15 36756 2
EHIC 6 73106 0
GAM 6 25452 1
Average 11.25 80790 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $81 million. That figure was $64 million in MOV’s case. Falcon Minerals Corporation (NASDAQ:FLMN) is the most popular stock in this table. On the other hand Ehi Car Services Ltd (NYSE:EHIC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Movado Group, Inc (NYSE:MOV) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately MOV wasn’t nearly as popular as these 15 stock and hedge funds that were betting on MOV were disappointed as the stock returned 5.4% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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