In this article we will check out the progression of hedge fund sentiment towards Ross Stores, Inc. (NASDAQ:ROST) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is ROST a good stock to buy? Ross Stores, Inc. (NASDAQ:ROST) shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. Ross Stores, Inc. (NASDAQ:ROST) was in 51 hedge funds’ portfolios at the end of June. The all time high for this statistic is 57. There were 48 hedge funds in our database with ROST positions at the end of the first quarter. Our calculations also showed that ROST isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Noam Gottesman of GLG Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s take a peek at the key hedge fund action encompassing Ross Stores, Inc. (NASDAQ:ROST).
Do Hedge Funds Think ROST Is A Good Stock To Buy Now?
At Q2’s end, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ROST over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Alkeon Capital Management was the largest shareholder of Ross Stores, Inc. (NASDAQ:ROST), with a stake worth $194.5 million reported as of the end of June. Trailing Alkeon Capital Management was D E Shaw, which amassed a stake valued at $157 million. GLG Partners, Suvretta Capital Management, and Arrowstreet Capital 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 Masterton Capital Management allocated the biggest weight to Ross Stores, Inc. (NASDAQ:ROST), around 10.21% of its 13F portfolio. 11 Capital Partners is also relatively very bullish on the stock, dishing out 4.87 percent of its 13F equity portfolio to ROST.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in Ross Stores, Inc. (NASDAQ:ROST). Arrowstreet Capital had $118.1 million invested in the company at the end of the quarter. Steven Boyd’s Armistice Capital also made a $36.2 million investment in the stock during the quarter. The other funds with brand new ROST positions are John Overdeck and David Siegel’s Two Sigma Advisors, Brian J. Higgins’s King Street Capital, and Gregg Moskowitz’s Interval Partners.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ross Stores, Inc. (NASDAQ:ROST) but similarly valued. We will take a look at Trane Technologies plc (NYSE:TT), MSCI Inc (NYSE:MSCI), Chipotle Mexican Grill, Inc. (NYSE:CMG), Eni SpA (NYSE:E), Exelon Corporation (NASDAQ:EXC), Canadian Natural Resources Limited (NYSE:CNQ), and Simon Property Group, Inc (NYSE:SPG). This group of stocks’ market valuations resemble ROST’s market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TT,37,1250491,2 MSCI,37,772551,-1 CMG,35,3204586,-6 E,3,69407,-1 EXC,35,1194570,-9 CNQ,27,777129,-2 SPG,37,666243,6 Average,30.1,1133568,-1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $1134 million. That figure was $1449 million in ROST’s case. Trane Technologies plc (NYSE:TT) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Ross Stores, Inc. (NASDAQ:ROST) is more popular among hedge funds. Our overall hedge fund sentiment score for ROST is 84.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Unfortunately ROST wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ROST were disappointed as the stock returned -10.2% since the end of the second quarter (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.