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 complex research processes 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. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of Corning Incorporated (NYSE:GLW) based on that data.
Is Corning Incorporated (NYSE:GLW) worth your attention right now? Prominent investors are becoming hopeful. The number of bullish hedge fund bets moved up by 1 recently. Our calculations also showed that GLW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we’re going to take a look at the fresh hedge fund action encompassing Corning Incorporated (NYSE:GLW).
How are hedge funds trading Corning Incorporated (NYSE:GLW)?
At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in GLW a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, David Harding’s Winton Capital Management has the biggest position in Corning Incorporated (NYSE:GLW), worth close to $36.7 million, corresponding to 0.4% of its total 13F portfolio. The second largest stake is held by Yacktman Asset Management, led by Donald Yacktman, holding a $34.8 million position; 0.4% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish encompass Mike Masters’s Masters Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management and David E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Valueworks LLC allocated the biggest weight to Corning Incorporated (NYSE:GLW), around 3.53% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, earmarking 2.31 percent of its 13F equity portfolio to GLW.
Consequently, key money managers were leading the bulls’ herd. Masters Capital Management, managed by Mike Masters, assembled the most valuable call position in Corning Incorporated (NYSE:GLW). Masters Capital Management had $28.5 million invested in the company at the end of the quarter. David E. Shaw’s D E Shaw also initiated a $5.5 million position during the quarter. The other funds with brand new GLW positions are Matthew Hulsizer’s PEAK6 Capital Management, Joshua Nash’s Ulysses Management, and Daniel Beltzman and Gergory Smith’s Birch Run Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Corning Incorporated (NYSE:GLW) but similarly valued. We will take a look at Telefonica Brasil SA (NYSE:VIV), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Microchip Technology Incorporated (NASDAQ:MCHP), and State Street Corporation (NYSE:STT). This group of stocks’ market values are closest to GLW’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VIV | 13 | 92351 | 1 |
| IBKR | 24 | 1030551 | 0 |
| MCHP | 29 | 1167981 | 3 |
| STT | 33 | 1207053 | -3 |
| Average | 24.75 | 874484 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $874 million. That figure was $203 million in GLW’s case. State Street Corporation (NYSE:STT) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 13 bullish hedge fund positions. Corning Incorporated (NYSE:GLW) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately GLW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GLW were disappointed as the stock returned -1% in 2019 and trailed 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
