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 Great Western Bancorp Inc (NYSE:GWB).
Is Great Western Bancorp Inc (NYSE:GWB) the right investment to pursue these days? The best stock pickers are taking an optimistic view. The number of long hedge fund positions advanced by 3 in recent months. Our calculations also showed that gwb isn’t among the 30 most popular stocks among hedge funds. GWB was in 11 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 8 hedge funds in our database with GWB positions at the end of the previous quarter.
In the eyes of most market participants, hedge funds are perceived as slow, old investment tools of the past. While there are over 8000 funds with their doors open at present, Our experts choose to focus on the aristocrats of this group, about 750 funds. These investment experts command the majority of all hedge funds’ total capital, and by following their finest equity investments, Insider Monkey has revealed various investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship hedge fund strategy outperformed the S&P 500 index by nearly 5 percentage points annually 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.
Cliff Asness of AQR Capital Management
We’re going to take a glance at the key hedge fund action regarding Great Western Bancorp Inc (NYSE:GWB).
What does the smart money think about Great Western Bancorp Inc (NYSE:GWB)?
Heading into the first quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from the second quarter of 2018. By comparison, 8 hedge funds held shares or bullish call options in GWB a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Great Western Bancorp Inc (NYSE:GWB), with a stake worth $3.8 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $3.5 million. AQR Capital Management, GLG Partners, and Fisher Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, specific money managers have been driving this bullishness. Renaissance Technologies, managed by Jim Simons, created the largest position in Great Western Bancorp Inc (NYSE:GWB). Renaissance Technologies had $3.8 million invested in the company at the end of the quarter. George Zweig, Shane Haas and Ravi Chander’s Signition LP also initiated a $0.2 million position during the quarter. The only other fund with a brand new GWB position is Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Great Western Bancorp Inc (NYSE:GWB) but similarly valued. These stocks are PriceSmart, Inc. (NASDAQ:PSMT), Bitauto Holdings Limited (NYSE:BITA), Lithia Motors Inc (NYSE:LAD), and Herman Miller, Inc. (NASDAQ:MLHR). This group of stocks’ market values are closest to GWB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PSMT | 8 | 31971 | -1 |
| BITA | 7 | 18400 | 0 |
| LAD | 20 | 470442 | 1 |
| MLHR | 22 | 99011 | 2 |
| Average | 14.25 | 154956 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $155 million. That figure was $19 million in GWB’s case. Herman Miller, Inc. (NASDAQ:MLHR) is the most popular stock in this table. On the other hand Bitauto Holdings Limited (NYSE:BITA) is the least popular one with only 7 bullish hedge fund positions. Great Western Bancorp Inc (NYSE:GWB) 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 GWB wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); GWB investors were disappointed as the stock returned 7.3% 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.
