Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Grand Canyon Education Inc (NASDAQ:LOPE).
Grand Canyon Education Inc (NASDAQ:LOPE) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Our calculations also showed that LOPE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
Paul Hondros of AlphaOne Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the recent hedge fund action surrounding Grand Canyon Education Inc (NASDAQ:LOPE).
What have hedge funds been doing with Grand Canyon Education Inc (NASDAQ:LOPE)?
Heading into the first quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from the third quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in LOPE a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Ken Griffin’s Citadel Investment Group has the biggest position in Grand Canyon Education Inc (NASDAQ:LOPE), worth close to $19.4 million, amounting to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is D E Shaw, managed by D. E. Shaw, which holds a $18.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish comprise Mark Coe’s Intrinsic Edge Capital, Israel Englander’s Millennium Management and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Lyon Street Capital allocated the biggest weight to Grand Canyon Education Inc (NASDAQ:LOPE), around 3.59% of its 13F portfolio. Sabrepoint Capital is also relatively very bullish on the stock, setting aside 3.34 percent of its 13F equity portfolio to LOPE.
Because Grand Canyon Education Inc (NASDAQ:LOPE) has witnessed falling interest from the smart money, it’s safe to say that there was a specific group of hedge funds that decided to sell off their entire stakes last quarter. Interestingly, Renaissance Technologies sold off the largest investment of all the hedgies followed by Insider Monkey, valued at an estimated $10.7 million in stock. Ian Simm’s fund, Impax Asset Management, also sold off its stock, about $3.3 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 7 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Grand Canyon Education Inc (NASDAQ:LOPE). These stocks are Solaredge Technologies Inc (NASDAQ:SEDG), Ashland Global Holdings Inc. (NYSE:ASH), Flowers Foods, Inc. (NYSE:FLO), and Darling Ingredients Inc. (NYSE:DAR). This group of stocks’ market valuations resemble LOPE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SEDG | 28 | 370387 | 7 |
| ASH | 30 | 1068070 | -3 |
| FLO | 20 | 237755 | -11 |
| DAR | 16 | 294979 | -11 |
| Average | 23.5 | 492798 | -4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $493 million. That figure was $115 million in LOPE’s case. Ashland Global Holdings Inc.. (NYSE:ASH) is the most popular stock in this table. On the other hand Darling Ingredients Inc. (NYSE:DAR) is the least popular one with only 16 bullish hedge fund positions. Grand Canyon Education Inc (NASDAQ:LOPE) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately LOPE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LOPE investors were disappointed as the stock returned -28.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
