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 GameStop Corp. (NYSE:GME) and determine whether hedge funds skillfully traded this stock.
Is GameStop Corp. (NYSE:GME) a healthy stock for your portfolio? The best stock pickers were buying. The number of long hedge fund positions increased by 2 recently. GameStop Corp. (NYSE:GME) was in 19 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. Our calculations also showed that GME isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 17 hedge funds in our database with GME positions at the end of the first quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most shareholders, hedge funds are assumed to be worthless, old investment vehicles of years past. While there are over 8000 funds trading today, Our researchers hone in on the masters of this group, about 850 funds. These hedge fund managers direct the majority of all hedge funds’ total capital, and by tailing their top stock picks, Insider Monkey has deciphered a few investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Lee Ainslie of Maverick Capital
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 are checking out this junior gold mining stock and 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 to get excerpts of these letters in your inbox. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding GameStop Corp. (NYSE:GME).
How are hedge funds trading GameStop Corp. (NYSE:GME)?
At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the first quarter of 2020. On the other hand, there were a total of 27 hedge funds with a bullish position in GME a year ago. 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, Scion Asset Management was the largest shareholder of GameStop Corp. (NYSE:GME), with a stake worth $11.9 million reported as of the end of September. Trailing Scion Asset Management was Paradice Investment Management, which amassed a stake valued at $8.4 million. Citadel Investment Group, D E Shaw, 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 Scion Asset Management allocated the biggest weight to GameStop Corp. (NYSE:GME), around 3.79% of its 13F portfolio. Paradice Investment Management is also relatively very bullish on the stock, designating 0.63 percent of its 13F equity portfolio to GME.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, initiated the largest position in GameStop Corp. (NYSE:GME). Alyeska Investment Group had $2.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.9 million position during the quarter. The following funds were also among the new GME investors: Michael Gelband’s ExodusPoint Capital, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, and Parvinder Thiara’s Athanor Capital.
Let’s also examine hedge fund activity in other stocks similar to GameStop Corp. (NYSE:GME). These stocks are Alexco Resource Corp. (NYSE:AXU), Modine Manufacturing Company (NYSE:MOD), Peoples Financial Services Corp. (NASDAQ:PFIS), Source Capital, Inc. (NYSE:SOR), Americas Gold and Silver Corporation (NYSE:USAS), iRadimed Corporation (NASDAQ:IRMD), and Verastem Inc (NASDAQ:VSTM). This group of stocks’ market caps match GME’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AXU | 5 | 1393 | 1 |
| MOD | 15 | 39283 | -1 |
| PFIS | 1 | 2497 | 0 |
| SOR | 4 | 13234 | 0 |
| USAS | 6 | 6394 | -2 |
| IRMD | 9 | 35972 | -5 |
| VSTM | 18 | 50510 | 1 |
| Average | 8.3 | 21326 | -0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.3 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $43 million in GME’s case. Verastem Inc (NASDAQ:VSTM) is the most popular stock in this table. On the other hand Peoples Financial Services Corp. (NASDAQ:PFIS) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks GameStop Corp. (NYSE:GME) is more popular among hedge funds. Our overall hedge fund sentiment score for GME is 72.8. 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 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 returned 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on GME as the stock returned 135% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
