General Finance Corporation (GFN) Fell Out Of Favor With Hedge Funds

In this article we will analyze whether General Finance Corporation (NASDAQ:GFN) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

General Finance Corporation (NASDAQ:GFN) was in 3 hedge funds’ portfolios at the end of September. The all time high for this statistics is 8. GFN investors should pay attention to a decrease in enthusiasm from smart money of late. There were 4 hedge funds in our database with GFN holdings at the end of June. Our calculations also showed that GFN isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.

David Siegel of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website. Now we’re going to take a glance at the new hedge fund action regarding General Finance Corporation (NASDAQ:GFN).

Hedge fund activity in General Finance Corporation (NASDAQ:GFN)

Heading into the fourth quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in GFN 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.

The largest stake in General Finance Corporation (NASDAQ:GFN) was held by Renaissance Technologies, which reported holding $4.1 million worth of stock at the end of September. It was followed by Royce & Associates with a $3.5 million position. The only other hedge fund that is bullish on the company was Two Sigma Advisors.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified GFN as a viable investment and initiated a position in the stock.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as General Finance Corporation (NASDAQ:GFN) but similarly valued. These stocks are Atlanticus Holdings Corp (NASDAQ:ATLC), Great Ajax Corp (NYSE:AJX), North American Construction Group Ltd. (NYSE:NOA), CASI Pharmaceuticals Inc (NASDAQ:CASI), Immersion Corporation (NASDAQ:IMMR), Rekor Systems, Inc. (NASDAQ:REKR), and Fluent, Inc. (NASDAQ:FLNT). This group of stocks’ market values match GFN’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.6 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $8 million in GFN’s case. Immersion Corporation (NASDAQ:IMMR) is the most popular stock in this table. On the other hand Atlanticus Holdings Corp (NASDAQ:ATLC) is the least popular one with only 2 bullish hedge fund positions. General Finance Corporation (NASDAQ:GFN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GFN is 17.9. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on GFN as the stock returned 16.1% since the end of the third quarter (through 11/23) and outperformed the market by an even larger margin.

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