2016 is turning out to be an extremely volatile period for apparel stocks. Like stocks from most industries, apparel stocks started 2016 on a dismal note, but most of them managed to recover from those early declines and end the first quarter on a positive note. However, the second quarter of 2016 has seen several apparel stocks being hit hard, with the industry at large underperforming most sectors by a wide margin. The Dow Jones U.S. Apparel Retailers Index, which acts as a barometer for the sector, ended the first quarter with a decent gain of 5%, but is currently trading down by almost 9% year-to-date after seeing a huge decline at the beginning of May. Considering the magnitude of the decline that the sector has seen of late, we thought it would be worthwhile to analyze what hedge funds thought about leading apparel stocks heading into the second quarter. Hence, in this article, we will be discussing the change in hedge fund ownership among five leading apparel stocks during the first quarter.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
#5 Guess?, Inc. (NYSE:GES)
– Investors with long positions (as of March 31) : 12
– Aggregate value of Investors’ holdings (as of March 31): $819.67 million
Let’s start with Guess?, Inc. (NYSE:GES), which saw its ownership among the hedge funds in our system inch down by two in the first quarter, while the aggregate value of their holdings in it fell by 15.2%. Shares of Guess?, Inc. (NYSE:GES) are currently trading down by 17% year-to-date, owing largely to the dismal guidance that the company provided for fiscal year 2017 when it released its fourth quarter of fiscal year 2016 results in March. On May 25, Guess?, Inc. reported its first quarter of fiscal 2017 figures, declaring a loss per share of $0.23 on revenue of $448.30 million, missing analysts’ estimates of a loss of $0.19 per share on revenue of $464.84 million. Guess?, Inc. pays a quarterly dividend of $0.225 per share, which translates into an attractive annual dividend yield of 5.68%. Funds that reduced their stake in the company significantly during the first quarter included Joel Greenblatt‘s Gotham Asset Management, which reduced its holding by 85% to 255,865 shares.
#4 Under Armour Inc (NYSE:UA)
– Investors with long positions (as of March 31) : 21
– Aggregate value of Investors’ holdings (as of March 31): $268.13 million
The number of hedge funds in our database long Under Armour Inc (NYSE:UA) declined by four during the first quarter, though the aggregate value of hedge funds’ holdings in the company saw an increase of 18%. Under Armour Inc (NYSE:UA) announced in March that it will issue Class C shares as a stock dividend to shareholders of its Class A and Class B shares. Since adding an additional class of shares has the same affect on a stock as a two-for-one stock split, shares of Under Armour dropped by half when this stock dividend (Class C shares) was distributed to shareholders at the end of the trading day on April 7. Since the day the new class C shares started trading, Under Armour’s stock has dropped by nearly 13% and currently trades down by 6% year-to-date. On May 10, analysts at Bank of America reiterated their ‘Buy’ rating and $54 price target on the stock, which represents potential upside of 42%. D.E. Shaw, founded by billionaire David E. Shaw, sold off its entire stake in the company during the first quarter.
Follow Under Armour Inc. (NYSE:UA)
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We’ll look into three more popular apparel stocks and how they were traded during the first quarter.