Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
CGI Inc. (NYSE:GIB) investors should be aware of a decrease in activity from the world’s largest hedge funds lately. GIB was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. There were 18 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 (see the video below).
Video: Click the image to 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 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 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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. Let’s go over the new hedge fund action encompassing CGI Inc. (NYSE:GIB).
How have hedgies been trading CGI Inc. (NYSE:GIB)?
Heading into the third quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in GIB over the last 16 quarters. 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 CGI Inc. (NYSE:GIB) was held by Arrowstreet Capital, which reported holding $233.8 million worth of stock at the end of March. It was followed by GLG Partners with a $42.4 million position. Other investors bullish on the company included Echo Street Capital Management, Marshall Wace LLP, and Bridgewater Associates.
Because CGI Inc. (NYSE:GIB) has witnessed declining sentiment from hedge fund managers, we can see that there exists a select few hedge funds that decided to sell off their full holdings heading into Q3. It’s worth mentioning that Renaissance Technologies dropped the biggest position of all the hedgies tracked by Insider Monkey, worth an estimated $13.8 million in stock, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt. was right behind this move, as the fund dumped about $1.2 million worth. These transactions are interesting, as total hedge fund interest dropped by 4 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CGI Inc. (NYSE:GIB) but similarly valued. We will take a look at Best Buy Co., Inc. (NYSE:BBY), Smith & Nephew plc (NYSE:SNN), Liberty Broadband Corp (NASDAQ:LBRDK), and CBS Corporation (NYSE:CBS). All of these stocks’ market caps resemble GIB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BBY | 31 | 991291 | -4 |
| SNN | 14 | 318986 | 1 |
| LBRDK | 40 | 3455587 | 1 |
| CBS | 50 | 1708960 | 4 |
| Average | 33.75 | 1618706 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $1619 million. That figure was $312 million in GIB’s case. CBS Corporation (NYSE:CBS) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks CGI Inc. (NYSE:GIB) is even less popular than SNN. 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. A small number of hedge funds were also right about betting on GIB, though not to the same extent, as the stock returned 3.1% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
