At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards GTT Communications Inc (NYSE:GTT) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is GTT Communications Inc (NYSE:GTT) a healthy stock for your portfolio? The smart money was reducing their bets on the stock. The number of long hedge fund bets dropped by 8 lately. Our calculations also showed that GTT 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). GTT was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. There were 18 hedge funds in our database with GTT holdings at the end of the previous quarter.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Now we’re going to go over the fresh hedge fund action regarding GTT Communications Inc (NYSE:GTT).
How are hedge funds trading GTT Communications Inc (NYSE:GTT)?
Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -44% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in GTT 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, Spruce House Investment Management was the largest shareholder of GTT Communications Inc (NYSE:GTT), with a stake worth $126.2 million reported as of the end of September. Trailing Spruce House Investment Management was MFN Partners, which amassed a stake valued at $6.6 million. MIC Capital Partners, GMT Capital, and Citadel Investment Group 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 Spruce House Investment Management allocated the biggest weight to GTT Communications Inc (NYSE:GTT), around 7.97% of its 13F portfolio. MIC Capital Partners is also relatively very bullish on the stock, earmarking 3.11 percent of its 13F equity portfolio to GTT.
Judging by the fact that GTT Communications Inc (NYSE:GTT) has experienced a decline in interest from the smart money, we can see that there were a few hedge funds that decided to sell off their positions entirely last quarter. Interestingly, Dan Loeb’s Third Point said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, comprising an estimated $17.3 million in stock. James Thomas Berylson’s fund, Berylson Capital Partners, also dropped its stock, about $1.8 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 8 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as GTT Communications Inc (NYSE:GTT) but similarly valued. These stocks are BioXcel Therapeutics, Inc. (NASDAQ:BTAI), Urstadt Biddle Properties Inc. (NYSE:UBP), SurModics, Inc. (NASDAQ:SRDX), and Central Pacific Financial Corp. (NYSE:CPF). This group of stocks’ market valuations match GTT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BTAI | 10 | 35609 | 7 |
| UBP | 1 | 979 | 0 |
| SRDX | 12 | 120004 | -5 |
| CPF | 16 | 47370 | -1 |
| Average | 9.75 | 50991 | 0.25 |
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 $51 million. That figure was $145 million in GTT’s case. Central Pacific Financial Corp. (NYSE:CPF) is the most popular stock in this table. On the other hand Urstadt Biddle Properties Inc. (NYSE:UBP) is the least popular one with only 1 bullish hedge fund positions. GTT Communications Inc (NYSE:GTT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 beat the market by 15.5 percentage points. Unfortunately GTT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GTT were disappointed as the stock returned 2.6% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
