Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
GrafTech International Ltd. (NYSE:EAF) was in 24 hedge funds’ portfolios at the end of March. EAF has seen an increase in activity from the world’s largest hedge funds of late. There were 23 hedge funds in our database with EAF holdings at the end of the previous quarter. Our calculations also showed that eaf 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’ 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.
Let’s take a look at the latest hedge fund action encompassing GrafTech International Ltd. (NYSE:EAF).
How have hedgies been trading GrafTech International Ltd. (NYSE:EAF)?
At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in EAF a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Goodnow Investment Group held the most valuable stake in GrafTech International Ltd. (NYSE:EAF), which was worth $23.9 million at the end of the first quarter. On the second spot was Indus Capital which amassed $20 million worth of shares. Moreover, AQR Capital Management, Anchor Bolt Capital, and Gotham Asset Management were also bullish on GrafTech International Ltd. (NYSE:EAF), allocating a large percentage of their portfolios to this stock.
Now, specific money managers have jumped into GrafTech International Ltd. (NYSE:EAF) headfirst. Anchor Bolt Capital, managed by Robert Polak, established the largest position in GrafTech International Ltd. (NYSE:EAF). Anchor Bolt Capital had $14.7 million invested in the company at the end of the quarter. John R. Wagner’s SCW Capital Management also initiated a $9.2 million position during the quarter. The other funds with brand new EAF positions are Matthew Hulsizer’s PEAK6 Capital Management, Matthew Hulsizer’s PEAK6 Capital Management, and Steve Cohen’s Point72 Asset Management.
Let’s go over hedge fund activity in other stocks similar to GrafTech International Ltd. (NYSE:EAF). We will take a look at United Bankshares, Inc. (NASDAQ:UBSI), Ritchie Bros. Auctioneers Incorporated (NYSE:RBA), Two Harbors Investment Corp (NYSE:TWO), and Immunomedics, Inc. (NASDAQ:IMMU). All of these stocks’ market caps match EAF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UBSI | 8 | 28300 | -2 |
| RBA | 15 | 151367 | 3 |
| TWO | 18 | 101532 | 2 |
| IMMU | 24 | 801981 | -4 |
| Average | 16.25 | 270795 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $271 million. That figure was $143 million in EAF’s case. Immunomedics, Inc. (NASDAQ:IMMU) is the most popular stock in this table. On the other hand United Bankshares, Inc. (NASDAQ:UBSI) is the least popular one with only 8 bullish hedge fund positions. GrafTech International Ltd. (NYSE:EAF) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately EAF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EAF were disappointed as the stock returned -19.3% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
