Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Genie Energy Ltd (NYSE:GNE).
Genie Energy Ltd (NYSE:GNE) was in 9 hedge funds’ portfolios at the end of the first quarter of 2019. GNE shareholders have witnessed a decrease in hedge fund interest lately. There were 11 hedge funds in our database with GNE positions at the end of the previous quarter. Our calculations also showed that gne isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to analyze the key hedge fund action encompassing Genie Energy Ltd (NYSE:GNE).
How are hedge funds trading Genie Energy Ltd (NYSE:GNE)?
At Q1’s end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. On the other hand, there were a total of 3 hedge funds with a bullish position in GNE a year ago. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Jim Simons’s Renaissance Technologies has the most valuable position in Genie Energy Ltd (NYSE:GNE), worth close to $4.5 million, accounting for less than 0.1%% of its total 13F portfolio. On Renaissance Technologies’s heels is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $1.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism encompass Israel Englander’s Millennium Management, Benjamin A. Smith’s Laurion Capital Management and Michael Gelband’s ExodusPoint Capital.
Due to the fact that Genie Energy Ltd (NYSE:GNE) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of fund managers that elected to cut their positions entirely heading into Q3. Interestingly, Irving Kahn’s Kahn Brothers sold off the biggest investment of the 700 funds tracked by Insider Monkey, worth about $2.4 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also cut its stock, about $0.2 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q3.
Let’s now review hedge fund activity in other stocks similar to Genie Energy Ltd (NYSE:GNE). We will take a look at The Joint Corp. (NASDAQ:JYNT), Stratus Properties Inc. (NASDAQ:STRS), First Bank (NASDAQ:FRBA), and Capital Product Partners L.P. (NASDAQ:CPLP). This group of stocks’ market caps resemble GNE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JYNT | 9 | 51071 | 3 |
| STRS | 3 | 32568 | -1 |
| FRBA | 3 | 5888 | -1 |
| CPLP | 6 | 4317 | 1 |
| Average | 5.25 | 23461 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $9 million in GNE’s case. The Joint Corp. (NASDAQ:JYNT) is the most popular stock in this table. On the other hand Stratus Properties Inc. (NASDAQ:STRS) is the least popular one with only 3 bullish hedge fund positions. Genie Energy Ltd (NYSE:GNE) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on GNE as the stock returned 22.9% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
