Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 5 months of this year through May 30th the Standard and Poor’s 500 Index returned approximately 12.1% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like GDS Holdings Limited (NASDAQ:GDS).
Is GDS Holdings Limited (NASDAQ:GDS) going to take off soon? Investors who are in the know are taking an optimistic view. The number of bullish hedge fund positions rose by 8 in recent months. Our calculations also showed that gds isn’t among the 30 most popular stocks among hedge funds. GDS was in 33 hedge funds’ portfolios at the end of March. There were 25 hedge funds in our database with GDS positions at the end of the previous quarter.
In the eyes of most traders, hedge funds are perceived as underperforming, old financial vehicles of yesteryear. While there are more than 8000 funds trading today, Our researchers hone in on the upper echelon of this group, around 750 funds. These money managers handle bulk of the smart money’s total capital, and by tailing their finest investments, Insider Monkey has identified a few investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship hedge fund strategy exceeded the S&P 500 index by around 5 percentage points a year since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
Let’s take a glance at the fresh hedge fund action regarding GDS Holdings Limited (NASDAQ:GDS).
How have hedgies been trading GDS Holdings Limited (NASDAQ:GDS)?
Heading into the second quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 32% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GDS over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in GDS Holdings Limited (NASDAQ:GDS) was held by 12 West Capital Management, which reported holding $389.6 million worth of stock at the end of March. It was followed by Kylin Management with a $57.4 million position. Other investors bullish on the company included Moore Global Investments, Light Street Capital, and Tekne Capital Management.
As one would reasonably expect, some big names have been driving this bullishness. Light Street Capital, managed by Glen Kacher, created the most valuable position in GDS Holdings Limited (NASDAQ:GDS). Light Street Capital had $46.4 million invested in the company at the end of the quarter. Rob Citrone’s Discovery Capital Management also initiated a $16.8 million position during the quarter. The other funds with new positions in the stock are James Dinan’s York Capital Management, D. E. Shaw’s D E Shaw, and Joe DiMenna’s ZWEIG DIMENNA PARTNERS.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as GDS Holdings Limited (NASDAQ:GDS) but similarly valued. These stocks are Manpowergroup Inc (NYSE:MAN), Nexstar Media Group, Inc. (NASDAQ:NXST), Genesee & Wyoming Inc (NYSE:GWR), and Kemper Corporation (NYSE:KMPR). This group of stocks’ market values are closest to GDS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MAN | 19 | 490554 | -6 |
| NXST | 31 | 1070646 | -3 |
| GWR | 22 | 409479 | 4 |
| KMPR | 8 | 83442 | -7 |
| Average | 20 | 513530 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $514 million. That figure was $847 million in GDS’s case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand Kemper Corporation (NYSE:KMPR) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks GDS Holdings Limited (NASDAQ:GDS) is more popular among hedge funds. 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. Unfortunately GDS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GDS were disappointed as the stock returned -5.2% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
