Were Hedge Funds Right About Souring On Columbia Sportswear Company (COLM)?

Reymerlyn Martin

Sat, Oct 26, 2019, 7:36 PM

Is Columbia Sportswear Company (NASDAQ:COLM) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Columbia Sportswear Company (NASDAQ:COLM) a buy, sell, or hold? Money managers are reducing their bets on the stock. The number of long hedge fund bets fell by 5 in recent months. Our calculations also showed that COLM isn't among the 30 most popular stocks among hedge funds (see the video below). COLM was in 27 hedge funds' portfolios at the end of the second quarter of 2019. There were 32 hedge funds in our database with COLM positions at the end of the previous quarter.

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the new hedge fund action encompassing Columbia Sportswear Company (NASDAQ:COLM).

How have hedgies been trading Columbia Sportswear Company (NASDAQ:COLM)?

Heading into the third quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in COLM over the last 16 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

More specifically, Arrowstreet Capital was the largest shareholder of Columbia Sportswear Company (NASDAQ:COLM), with a stake worth $55.9 million reported as of the end of March. Trailing Arrowstreet Capital was AQR Capital Management, which amassed a stake valued at $40.2 million. Two Sigma Advisors, Millennium Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Since Columbia Sportswear Company (NASDAQ:COLM) has witnessed falling interest from hedge fund managers, it's safe to say that there exists a select few hedge funds that slashed their positions entirely heading into Q3. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace LLP sold off the biggest investment of all the hedgies followed by Insider Monkey, worth an estimated $28.3 million in stock, and Lee Ainslie's Maverick Capital was right behind this move, as the fund dropped about $11.1 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 5 funds heading into Q3.

Let's now take a look at hedge fund activity in other stocks similar to Columbia Sportswear Company (NASDAQ:COLM). These stocks are Anaplan, Inc. (NYSE:PLAN), Perrigo Company (NASDAQ:PRGO), CyrusOne Inc (NASDAQ:CONE), and Signature Bank (NASDAQ:SBNY). This group of stocks' market values match COLM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLAN,37,1639092,15 PRGO,21,720516,3 CONE,18,173157,1 SBNY,29,513611,-7 Average,26.25,761594,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $762 million. That figure was $283 million in COLM's case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand CyrusOne Inc (NASDAQ:CONE) is the least popular one with only 18 bullish hedge fund positions. Columbia Sportswear Company (NASDAQ:COLM) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately COLM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on COLM were disappointed as the stock returned -3% during the third quarter 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.

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

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