Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Hedge fund interest in Geospace Technologies Corp (NASDAQ:GEOS) 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 GEOS to other stocks including Eros International plc (NYSE:EROS), Atento SA (NYSE:ATTO), and Fluent, Inc. (NASDAQ:FLNT) 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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a peek at the latest hedge fund action encompassing Geospace Technologies Corp (NASDAQ:GEOS).
Hedge fund activity in Geospace Technologies Corp (NASDAQ:GEOS)
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GEOS over the last 17 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Geospace Technologies Corp (NASDAQ:GEOS) was held by Rutabaga Capital Management, which reported holding $6.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $3.3 million position. Other investors bullish on the company included D E Shaw, Ancora Advisors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Geospace Technologies Corp (NASDAQ:GEOS), around 2.32% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to GEOS.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s also examine hedge fund activity in other stocks similar to Geospace Technologies Corp (NASDAQ:GEOS). These stocks are Eros International plc (NYSE:EROS), Atento SA (NYSE:ATTO), Fluent, Inc. (NASDAQ:FLNT), and SeaDrill Limited (NYSE:SDRL). All of these stocks’ market caps are similar to GEOS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EROS | 6 | 12518 | -2 |
| ATTO | 7 | 1952 | -2 |
| FLNT | 8 | 5064 | -1 |
| SDRL | 17 | 53253 | -1 |
| Average | 9.5 | 18197 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $10 million in GEOS’s case. SeaDrill Limited (NYSE:SDRL) is the most popular stock in this table. On the other hand Eros International plc (NYSE:EROS) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Geospace Technologies Corp (NASDAQ:GEOS) is even less popular than EROS. Hedge funds dodged a bullet by taking a bearish stance towards GEOS. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GEOS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); GEOS investors were disappointed as the stock returned -6.2% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
