We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded PVH Corp (NYSE:PVH) based on those filings.
PVH Corp (NYSE:PVH) has seen a decrease in hedge fund sentiment of late. PVH was in 29 hedge funds' portfolios at the end of December. There were 32 hedge funds in our database with PVH positions at the end of the previous quarter. Our calculations also showed that PVH 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).
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 S&P 500 ETFs by more than 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_26794" align="aligncenter" width="400"] Paul Tudor Jones of Tudor Investment Corp[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind let's review the new hedge fund action encompassing PVH Corp (NYSE:PVH).
What have hedge funds been doing with PVH Corp (NYSE:PVH)?
At Q4's end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the third quarter of 2019. By comparison, 35 hedge funds held shares or bullish call options in PVH a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in PVH Corp (NYSE:PVH) was held by Pzena Investment Management, which reported holding $523.4 million worth of stock at the end of September. It was followed by AQR Capital Management with a $134.3 million position. Other investors bullish on the company included D E Shaw, Alyeska Investment Group, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Dorsal Capital Management allocated the biggest weight to PVH Corp (NYSE:PVH), around 2.86% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, earmarking 2.44 percent of its 13F equity portfolio to PVH.
Seeing as PVH Corp (NYSE:PVH) has experienced falling interest from the smart money, it's safe to say that there were a few fund managers that elected to cut their positions entirely in the third quarter. At the top of the heap, David Keidan's Buckingham Capital Management said goodbye to the largest position of the "upper crust" of funds tracked by Insider Monkey, valued at close to $9.5 million in stock. Ian Simm's fund, Impax Asset Management, also dropped its stock, about $8.7 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 3 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to PVH Corp (NYSE:PVH). We will take a look at BioNTech SE (NASDAQ:BNTX), Erie Indemnity Company (NASDAQ:ERIE), Commerce Bancshares, Inc. (NASDAQ:CBSH), and Qiagen NV (NYSE:QGEN). This group of stocks' market valuations resemble PVH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BNTX,4,29499,4 ERIE,20,92549,0 CBSH,10,43262,1 QGEN,51,585326,27 Average,21.25,187659,8 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $188 million. That figure was $1024 million in PVH's case. Qiagen NV (NYSE:QGEN) is the most popular stock in this table. On the other hand BioNTech SE (NASDAQ:BNTX) is the least popular one with only 4 bullish hedge fund positions. PVH Corp (NYSE:PVH) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately PVH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PVH were disappointed as the stock returned -61.2% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. 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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