How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Triple-S Management Corp.(NYSE:GTS) and determine whether hedge funds had an edge regarding this stock.
Is Triple-S Management Corp.(NYSE:GTS) a splendid investment now? Hedge funds were becoming less confident. The number of bullish hedge fund bets fell by 7 recently. Our calculations also showed that GTS 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.
Richard S. Pzena of Pzena Investment Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the fresh hedge fund action encompassing Triple-S Management Corp.(NYSE:GTS).
Hedge fund activity in Triple-S Management Corp.(NYSE:GTS)
Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -39% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GTS over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in Triple-S Management Corp.(NYSE:GTS) was held by Pzena Investment Management, which reported holding $31.2 million worth of stock at the end of September. It was followed by Lakewood Capital Management with a $29.5 million position. Other investors bullish on the company included Madison Avenue Partners, D E Shaw, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Madison Avenue Partners allocated the biggest weight to Triple-S Management Corp.(NYSE:GTS), around 5.29% of its 13F portfolio. Lakewood Capital Management is also relatively very bullish on the stock, earmarking 1.35 percent of its 13F equity portfolio to GTS.
Judging by the fact that Triple-S Management Corp.(NYSE:GTS) has experienced a decline in interest from the smart money, it’s easy to see that there was a specific group of money managers that decided to sell off their positions entirely by the end of the first quarter. Interestingly, Renaissance Technologies sold off the largest position of all the hedgies watched by Insider Monkey, comprising about $4 million in stock. Israel Englander’s fund, Millennium Management, also dumped its stock, about $2 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 7 funds by the end of the first quarter.
Let’s also examine hedge fund activity in other stocks similar to Triple-S Management Corp.(NYSE:GTS). These stocks are Century Bancorp, Inc. (NASDAQ:CNBKA), Amalgamated Bank (NASDAQ:AMAL), Central Puerto S.A. (NYSE:CEPU), and Viking Therapeutics, Inc. (NASDAQ:VKTX). This group of stocks’ market values are closest to GTS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNBKA | 4 | 13897 | -1 |
| AMAL | 12 | 27523 | 2 |
| CEPU | 6 | 5446 | 1 |
| VKTX | 17 | 24942 | 3 |
| Average | 9.75 | 17952 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $95 million in GTS’s case. Viking Therapeutics, Inc. (NASDAQ:VKTX) is the most popular stock in this table. On the other hand Century Bancorp, Inc. (NASDAQ:CNBKA) is the least popular one with only 4 bullish hedge fund positions. Triple-S Management Corp.(NYSE:GTS) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on GTS as the stock returned 34.9% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
