We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether GDS Holdings Limited (NASDAQ:GDS) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is GDS Holdings Limited (NASDAQ:GDS) ready to rally soon? Money managers are becoming hopeful. The number of bullish hedge fund positions rose by 2 recently. Our calculations also showed that GDS 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). GDS was in 34 hedge funds’ portfolios at the end of December. There were 32 hedge funds in our database with GDS holdings at the end of the previous quarter.
To the average investor there are many methods market participants can use to appraise their holdings. A couple of the most innovative methods are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the elite money managers can outperform their index-focused peers by a healthy amount (see the details here).
Chase Coleman of Tiger Global
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 gander at the key hedge fund action surrounding GDS Holdings Limited (NASDAQ:GDS).
Hedge fund activity in GDS Holdings Limited (NASDAQ:GDS)
At the end of the fourth quarter, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the third quarter of 2019. By comparison, 25 hedge funds held shares or bullish call options in GDS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, 12 West Capital Management held the most valuable stake in GDS Holdings Limited (NASDAQ:GDS), which was worth $564.4 million at the end of the third quarter. On the second spot was Tiger Global Management LLC which amassed $295.6 million worth of shares. D E Shaw, Kylin Management, and Bridger Management 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 12 West Capital Management allocated the biggest weight to GDS Holdings Limited (NASDAQ:GDS), around 35.6% of its 13F portfolio. Tekne Capital Management is also relatively very bullish on the stock, dishing out 20.33 percent of its 13F equity portfolio to GDS.
Consequently, some big names were breaking ground themselves. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, assembled the most outsized position in GDS Holdings Limited (NASDAQ:GDS). LMR Partners had $13.6 million invested in the company at the end of the quarter. David Paradice’s Paradice Investment Management also initiated a $8 million position during the quarter. The following funds were also among the new GDS investors: Stuart J. Zimmer’s Zimmer Partners, Dmitry Balyasny’s Balyasny Asset Management, and Renaissance Technologies.
Let’s now take a look at hedge fund activity in other stocks similar to GDS Holdings Limited (NASDAQ:GDS). We will take a look at A. O. Smith Corporation (NYSE:AOS), Albemarle Corporation (NYSE:ALB), Monolithic Power Systems, Inc. (NASDAQ:MPWR), and Post Holdings Inc (NYSE:POST). This group of stocks’ market values are similar to GDS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AOS | 26 | 396644 | 3 |
| ALB | 23 | 116420 | 5 |
| MPWR | 27 | 325420 | 1 |
| POST | 38 | 1515106 | 10 |
| Average | 28.5 | 588398 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $588 million. That figure was $1466 million in GDS’s case. Post Holdings Inc (NYSE:POST) is the most popular stock in this table. On the other hand Albemarle Corporation (NYSE:ALB) is the least popular one with only 23 bullish hedge fund positions. GDS Holdings Limited (NASDAQ:GDS) is not the most popular stock in this group but hedge fund interest is still above average. 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 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on GDS as the stock returned -6.5% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
