Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to CGI Inc. (NYSE:GIB) changed recently.
Is CGI Inc. (NYSE:GIB) going to take off soon? The best stock pickers are taking an optimistic view. The number of bullish hedge fund positions inched up by 1 lately. Our calculations also showed that gib isn’t among the 30 most popular stocks among hedge funds.
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.
Noam Gottesman, GLG Partners
We’re going to take a glance at the recent hedge fund action encompassing CGI Inc. (NYSE:GIB).
How have hedgies been trading CGI Inc. (NYSE:GIB)?
At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards GIB over the last 15 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Cliff Asness’s AQR Capital Management has the number one position in CGI Inc. (NYSE:GIB), worth close to $187.6 million, corresponding to 0.2% of its total 13F portfolio. The second most bullish fund manager is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $69.6 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass Noam Gottesman’s GLG Partners, Jim Simons’s Renaissance Technologies and Greg Poole’s Echo Street Capital Management.
Consequently, some big names were breaking ground themselves. AQR Capital Management, managed by Cliff Asness, established the biggest position in CGI Inc. (NYSE:GIB). AQR Capital Management had $187.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $69.6 million position during the quarter. The other funds with new positions in the stock are Noam Gottesman’s GLG Partners, Jim Simons’s Renaissance Technologies, and Greg Poole’s Echo Street Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CGI Inc. (NYSE:GIB) but similarly valued. These stocks are MSCI Inc (NYSE:MSCI), Continental Resources, Inc. (NYSE:CLR), First Republic Bank (NYSE:FRC), and AmerisourceBergen Corporation (NYSE:ABC). All of these stocks’ market caps are similar to GIB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MSCI | 36 | 630783 | -2 |
| CLR | 31 | 559307 | -5 |
| FRC | 18 | 683851 | 3 |
| ABC | 28 | 677582 | -6 |
| Average | 28.25 | 637881 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $638 million. That figure was $340 million in GIB’s case. MSCI Inc (NYSE:MSCI) is the most popular stock in this table. On the other hand First Republic Bank (NYSE:FRC) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks CGI Inc. (NYSE:GIB) is even less popular than FRC. Hedge funds clearly dropped the ball on GIB 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on GIB as the stock returned 6.2% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
