The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of GP Strategies Corporation (NYSE:GPX) and find out how it is affected by hedge funds’ moves.
Hedge fund interest in GP Strategies Corporation (NYSE:GPX) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare GPX to other stocks including Ceragon Networks Ltd. (NASDAQ:CRNT), New Age Beverages Corporation (NASDAQ:NBEV), and Monroe Capital Corp (NASDAQ:MRCC) to get a better sense of its popularity.
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.
Jeffrey Bronchick of Cove Street Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the latest hedge fund action encompassing GP Strategies Corporation (NYSE:GPX).
Hedge fund activity in GP Strategies Corporation (NYSE:GPX)
Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in GPX over the last 17 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Sagard Capital Partners Management held the most valuable stake in GP Strategies Corporation (NYSE:GPX), which was worth $46.7 million at the end of the third quarter. On the second spot was Cove Street Capital which amassed $30.2 million worth of shares. Royce & Associates, Rutabaga Capital Management, and D E Shaw 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 Sagard Capital Partners Management allocated the biggest weight to GP Strategies Corporation (NYSE:GPX), around 100% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, dishing out 4.22 percent of its 13F equity portfolio to GPX.
Due to the fact that GP Strategies Corporation (NYSE:GPX) has faced a decline in interest from the smart money, we can see that there was a specific group of funds that elected to cut their positions entirely heading into Q4. Interestingly, Renaissance Technologies sold off the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising close to $0.5 million in stock, and Paul Hondros’s AlphaOne Capital Partners was right behind this move, as the fund cut about $0.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to GP Strategies Corporation (NYSE:GPX). These stocks are Ceragon Networks Ltd. (NASDAQ:CRNT), New Age Beverages Corporation (NASDAQ:NBEV), Monroe Capital Corp (NASDAQ:MRCC), and Bankwell Financial Group, Inc. (NASDAQ:BWFG). All of these stocks’ market caps resemble GPX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRNT | 3 | 11894 | -1 |
| NBEV | 6 | 1169 | 2 |
| MRCC | 6 | 2832 | 2 |
| BWFG | 6 | 45471 | 1 |
| Average | 5.25 | 15342 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $103 million in GPX’s case. New Age Beverages Corporation (NASDAQ:NBEV) is the most popular stock in this table. On the other hand Ceragon Networks Ltd. (NASDAQ:CRNT) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks GP Strategies Corporation (NYSE:GPX) is more popular among hedge funds. 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. Unfortunately GPX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GPX were disappointed as the stock returned -1.1% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
