Did Hedge Funds Make The Right Call On CGI Inc. (GIB) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards CGI Inc. (NYSE:GIB) and determine whether hedge funds skillfully traded this stock.

CGI Inc. (NYSE:GIB) was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. GIB investors should be aware of a decrease in activity from the world’s largest hedge funds of late. There were 19 hedge funds in our database with GIB positions at the end of the previous quarter. Our calculations also showed that GIB 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.

Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to check out the latest hedge fund action regarding CGI Inc. (NYSE:GIB).

What does smart money think about CGI Inc. (NYSE:GIB)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the fourth quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in GIB a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Arrowstreet Capital held the most valuable stake in CGI Inc. (NYSE:GIB), which was worth $121 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $28.1 million worth of shares. D E Shaw, GLG Partners, and Millennium Management 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 Galibier Capital Management allocated the biggest weight to CGI Inc. (NYSE:GIB), around 4.75% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, designating 0.38 percent of its 13F equity portfolio to GIB.

Because CGI Inc. (NYSE:GIB) has faced falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedgies that decided to sell off their positions entirely last quarter. Interestingly, Richard Driehaus’s Driehaus Capital said goodbye to the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling close to $0.7 million in stock. Peter Muller’s fund, PDT Partners, also dropped its stock, about $0.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to CGI Inc. (NYSE:GIB). We will take a look at Cheniere Energy Partners LP (NYSE:CQP), iQIYI, Inc. (NASDAQ:IQ), Amcor plc (NYSE:AMCR), and Leidos Holdings Inc (NYSE:LDOS). All of these stocks’ market caps resemble GIB’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $644 million. That figure was $247 million in GIB’s case. Leidos Holdings Inc (NYSE:LDOS) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 3 bullish hedge fund positions. CGI Inc. (NYSE:GIB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately GIB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); GIB investors were disappointed as the stock returned 21.2% since Q1 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.