We can judge whether GlobalSCAPE, Inc. (NYSE:GSB) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Hedge fund interest in GlobalSCAPE, Inc. (NYSE:GSB) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as RCI Hospitality Holdings, Inc. (NASDAQ:RICK), LF Capital Acquisition Corp. (NASDAQ:LFAC), and NII Holdings, Inc. (NASDAQ:NIHD) to gather more data points. Our calculations also showed that GSB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s go over the new hedge fund action encompassing GlobalSCAPE, Inc. (NYSE:GSB).
Hedge fund activity in GlobalSCAPE, Inc. (NYSE:GSB)
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 3 hedge funds held shares or bullish call options in GSB a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies holds the number one position in GlobalSCAPE, Inc. (NYSE:GSB). Renaissance Technologies has a $13.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies’s heels is Bradley Louis Radoff of Fondren Management, with a $4.4 million position; 3.6% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Fondren Management allocated the biggest weight to GlobalSCAPE, Inc. (NYSE:GSB), around 3.63% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to GSB.
Due to the fact that GlobalSCAPE, Inc. (NYSE:GSB) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few hedgies that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, Matthew Hulsizer’s PEAK6 Capital Management said goodbye to the largest stake of the “upper crust” of funds watched by Insider Monkey, totaling about $0.1 million in call options, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund cut about $0.1 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as GlobalSCAPE, Inc. (NYSE:GSB) but similarly valued. These stocks are RCI Hospitality Holdings, Inc. (NASDAQ:RICK), LF Capital Acquisition Corp. (NASDAQ:LFAC), NII Holdings, Inc. (NASDAQ:NIHD), and Fang Holdings Limited (NYSE:SFUN). This group of stocks’ market valuations are similar to GSB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RICK | 8 | 12926 | 1 |
| LFAC | 11 | 27064 | -1 |
| NIHD | 14 | 69608 | -1 |
| SFUN | 5 | 1116 | -1 |
| Average | 9.5 | 27679 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $21 million in GSB’s case. NII Holdings, Inc. (NASDAQ:NIHD) is the most popular stock in this table. On the other hand Fang Holdings Limited (NYSE:SFUN) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks GlobalSCAPE, Inc. (NYSE:GSB) is even less popular than SFUN. Hedge funds clearly dropped the ball on GSB as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on GSB as the stock returned 10.9% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.