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 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) 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 Gentex Corporation (NASDAQ:GNTX).
Is Gentex Corporation (NASDAQ:GNTX) a sound investment now? Investors who are in the know are getting less bullish. The number of bullish hedge fund positions went down by 4 recently. Our calculations also showed that GNTX isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
We’re going to take a peek at the key hedge fund action regarding Gentex Corporation (NASDAQ:GNTX).
How have hedgies been trading Gentex Corporation (NASDAQ:GNTX)?
At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GNTX over the last 14 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.
Among these funds, Adage Capital Management held the most valuable stake in Gentex Corporation (NASDAQ:GNTX), which was worth $67.8 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $60.4 million worth of shares. Moreover, Nitorum Capital, Renaissance Technologies, and Citadel Investment Group were also bullish on Gentex Corporation (NASDAQ:GNTX), allocating a large percentage of their portfolios to this stock.
Due to the fact that Gentex Corporation (NASDAQ:GNTX) has faced a decline in interest from hedge fund managers, logic holds that there is a sect of hedge funds who sold off their entire stakes by the end of the third quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest position of all the hedgies tracked by Insider Monkey, valued at an estimated $4.3 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund sold off about $2.5 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 4 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Gentex Corporation (NASDAQ:GNTX). We will take a look at LPL Financial Holdings Inc (NASDAQ:LPLA), Dunkin Brands Group Inc (NASDAQ:DNKN), Euronet Worldwide, Inc. (NASDAQ:EEFT), and YPF Sociedad Anonima (NYSE:YPF). This group of stocks’ market caps resemble GNTX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LPLA | 34 | 1007196 | -1 |
| DNKN | 18 | 108533 | 6 |
| EEFT | 31 | 214658 | 7 |
| YPF | 15 | 213817 | -2 |
| Average | 24.5 | 386051 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $386 million. That figure was $265 million in GNTX’s case. LPL Financial Holdings Inc (NASDAQ:LPLA) is the most popular stock in this table. On the other hand YPF Sociedad Anonima (NYSE:YPF) is the least popular one with only 15 bullish hedge fund positions. Gentex Corporation (NASDAQ:GNTX) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately GNTX wasn’t in this group. Hedge funds that bet on GNTX were disappointed as the stock returned 6.4% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
