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Were Hedge Funds Right About The Buckle, Inc. (BKE)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether The Buckle, Inc. (NYSE:BKE) is a good investment right now.

The Buckle, Inc. (NYSE:BKE) has seen an increase in support from the world’s most elite money managers lately. BKE was in 21 hedge funds’ portfolios at the end of December. There were 14 hedge funds in our database with BKE holdings at the end of the previous quarter. Our calculations also showed that BKE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 S&P 500 ETFs by 41 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 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.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the latest hedge fund action regarding The Buckle, Inc. (NYSE:BKE).

What have hedge funds been doing with The Buckle, Inc. (NYSE:BKE)?

At Q4’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the third quarter of 2019. By comparison, 13 hedge funds held shares or bullish call options in BKE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in The Buckle, Inc. (NYSE:BKE), which was worth $25.3 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $9.9 million worth of shares. Citadel Investment Group, D E Shaw, and Winton Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sprott Asset Management allocated the biggest weight to The Buckle, Inc. (NYSE:BKE), around 1.23% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.19 percent of its 13F equity portfolio to BKE.

As aggregate interest increased, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the biggest position in The Buckle, Inc. (NYSE:BKE). Arrowstreet Capital had $9.9 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $6 million position during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, Dmitry Balyasny’s Balyasny Asset Management, and Michael Gelband’s ExodusPoint Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Buckle, Inc. (NYSE:BKE) but similarly valued. We will take a look at Scholastic Corp (NASDAQ:SCHL), New Mountain Finance Corp. (NYSE:NMFC), Orchard Therapeutics plc (NASDAQ:ORTX), and Employers Holdings, Inc. (NYSE:EIG). This group of stocks’ market caps are similar to BKE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SCHL 15 79733 -2
NMFC 17 51541 1
ORTX 22 361130 3
EIG 15 69551 0
Average 17.25 140489 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $82 million in BKE’s case. Orchard Therapeutics plc (NASDAQ:ORTX) is the most popular stock in this table. On the other hand Scholastic Corp (NASDAQ:SCHL) is the least popular one with only 15 bullish hedge fund positions. The Buckle, Inc. (NYSE:BKE) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately BKE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BKE were disappointed as the stock returned -44.3% during the same time period 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 many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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