How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Express, Inc. (NYSE:EXPR) and determine whether hedge funds had an edge regarding this stock.
Express, Inc. (NYSE:EXPR) investors should pay attention to an increase in hedge fund sentiment lately. EXPR was in 13 hedge funds' portfolios at the end of the first quarter of 2020. There were 12 hedge funds in our database with EXPR holdings at the end of the previous quarter. Our calculations also showed that EXPR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: 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 S&P 500 ETFs by more than 58 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_845793" align="aligncenter" width="400"] Peter Rathjens of Arrowstreet Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 most profitable companies in the world to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's analyze the latest hedge fund action regarding Express, Inc. (NYSE:EXPR).
How are hedge funds trading Express, Inc. (NYSE:EXPR)?
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EXPR over the last 18 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Jeff Osher's No Street Capital has the number one position in Express, Inc. (NYSE:EXPR), worth close to $9.5 million, accounting for 1.9% of its total 13F portfolio. The second most bullish fund manager is Contrarius Investment Management, led by Stephen Mildenhall, holding a $9.1 million position; 1.2% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions consist of Steven Baughman's Divisar Capital, Renaissance Technologies and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Divisar Capital allocated the biggest weight to Express, Inc. (NYSE:EXPR), around 3.5% of its 13F portfolio. No Street Capital is also relatively very bullish on the stock, dishing out 1.91 percent of its 13F equity portfolio to EXPR.
Consequently, specific money managers have been driving this bullishness. No Street Capital, managed by Jeff Osher, established the most outsized position in Express, Inc. (NYSE:EXPR). No Street Capital had $9.5 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital also made a $0.5 million investment in the stock during the quarter. The only other fund with a new position in the stock is Paul Tudor Jones's Tudor Investment Corp.
Let's now review hedge fund activity in other stocks similar to Express, Inc. (NYSE:EXPR). We will take a look at PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS), Malvern Bancorp, Inc. (NASDAQ:MLVF), California BanCorp (NASDAQ:CALB), and Scully Royalty Ltd. (NYSE:SRL). This group of stocks' market values are closest to EXPR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PHAS,7,7932,-1 MLVF,5,19112,1 CALB,4,9702,4 SRL,2,6171,0 Average,4.5,10729,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $37 million in EXPR's case. PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS) is the most popular stock in this table. On the other hand Scully Royalty Ltd. (NYSE:SRL) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Express, Inc. (NYSE:EXPR) is more popular among hedge funds. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately EXPR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on EXPR were disappointed as the stock returned 2.7% during the second quarter (through June 25th) 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.