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 13.1% in the first 2.5 months of this year (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. An average long/short hedge fund returned only 5% 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 Gibraltar Industries Inc (NASDAQ:ROCK).
Gibraltar Industries Inc (NASDAQ:ROCK) investors should be aware of a decrease in support from the world’s most elite money managers of late. ROCK was in 10 hedge funds’ portfolios at the end of December. There were 12 hedge funds in our database with ROCK holdings at the end of the previous quarter. Our calculations also showed that ROCK isn’t among the 30 most popular stocks among hedge funds.
In the eyes of most stock holders, hedge funds are perceived as slow, outdated financial tools of the past. While there are over 8000 funds with their doors open at present, We choose to focus on the crème de la crème of this club, around 750 funds. It is estimated that this group of investors preside over bulk of the hedge fund industry’s total capital, and by shadowing their unrivaled equity investments, Insider Monkey has found many investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship hedge fund strategy defeated the S&P 500 index by nearly 5 percentage points per annum since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.
Let’s review the new hedge fund action encompassing Gibraltar Industries Inc (NASDAQ:ROCK).
How have hedgies been trading Gibraltar Industries Inc (NASDAQ:ROCK)?
At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ROCK over the last 14 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in Gibraltar Industries Inc (NASDAQ:ROCK) was held by Pzena Investment Management, which reported holding $43.8 million worth of stock at the end of December. It was followed by Headlands Capital with a $15.4 million position. Other investors bullish on the company included Royce & Associates, D E Shaw, and Two Sigma Advisors.
Since Gibraltar Industries Inc (NASDAQ:ROCK) has faced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedgies that decided to sell off their entire stakes last quarter. At the top of the heap, Richard Driehaus’s Driehaus Capital dumped the biggest stake of the 700 funds tracked by Insider Monkey, worth close to $13.2 million in stock. David Harding’s fund, Winton Capital Management, also dropped its stock, about $9.6 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Gibraltar Industries Inc (NASDAQ:ROCK) but similarly valued. We will take a look at First Majestic Silver Corp (NYSE:AG), Bright Scholar Education Holdings Limited (NYSE:BEDU), SRC Energy Inc. (NYSE:SRCI), and BrightSphere Investment Group plc (NYSE:BSIG). This group of stocks’ market values are similar to ROCK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AG | 10 | 12089 | 0 |
| BEDU | 8 | 90359 | -2 |
| SRCI | 14 | 274876 | -1 |
| BSIG | 22 | 137597 | 0 |
| Average | 13.5 | 128730 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $86 million in ROCK’s case. BrightSphere Investment Group plc (NYSE:BSIG) is the most popular stock in this table. On the other hand Bright Scholar Education Holdings Limited (NYSE:BEDU) is the least popular one with only 8 bullish hedge fund positions. Gibraltar Industries Inc (NASDAQ:ROCK) 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 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately ROCK wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); ROCK investors were disappointed as the stock returned 12.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
