Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Global Ship Lease, Inc. (NYSE:GSL) has seen an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that GSL 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.
Christian Leone of Luxor Capital Group
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 gander at the key hedge fund action surrounding Global Ship Lease, Inc. (NYSE:GSL).
Hedge fund activity in Global Ship Lease, Inc. (NYSE:GSL)
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 267% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in GSL over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in Global Ship Lease, Inc. (NYSE:GSL) was held by Nokomis Capital, which reported holding $9.4 million worth of stock at the end of September. It was followed by Gratia Capital with a $2.7 million position. Other investors bullish on the company included Renaissance Technologies, Brigade Capital, and Luxor Capital Group. In terms of the portfolio weights assigned to each position Gratia Capital allocated the biggest weight to Global Ship Lease, Inc. (NYSE:GSL), around 4.57% of its 13F portfolio. Nokomis Capital is also relatively very bullish on the stock, setting aside 2.02 percent of its 13F equity portfolio to GSL.
As industrywide interest jumped, key money managers have jumped into Global Ship Lease, Inc. (NYSE:GSL) headfirst. Nokomis Capital, managed by Brett Hendrickson, assembled the largest position in Global Ship Lease, Inc. (NYSE:GSL). Nokomis Capital had $9.4 million invested in the company at the end of the quarter. Steve Pei’s Gratia Capital also initiated a $2.7 million position during the quarter. The other funds with brand new GSL positions are Don Morgan’s Brigade Capital, Christian Leone’s Luxor Capital Group, and Peter S. Park’s Park West Asset Management.
Let’s now review hedge fund activity in other stocks similar to Global Ship Lease, Inc. (NYSE:GSL). These stocks are Genocea Biosciences Inc (NASDAQ:GNCA), Mersana Therapeutics, Inc. (NASDAQ:MRSN), IF Bancorp Inc (NASDAQ:IROQ), and Electrameccanica Vehicles Corp. (NASDAQ:SOLO). This group of stocks’ market caps are closest to GSL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GNCA | 11 | 15243 | 0 |
| MRSN | 13 | 21203 | -1 |
| IROQ | 1 | 2125 | -1 |
| SOLO | 2 | 648 | 0 |
| Average | 6.75 | 9805 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $23 million in GSL’s case. Mersana Therapeutics, Inc. (NASDAQ:MRSN) is the most popular stock in this table. On the other hand IF Bancorp Inc (NASDAQ:IROQ) is the least popular one with only 1 bullish hedge fund positions. Global Ship Lease, Inc. (NYSE:GSL) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on GSL as the stock returned 16.2% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
