While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Genesee & Wyoming Inc (NYSE:GWR) and see how the stock performed in comparison to hedge funds’ consensus picks.
Genesee & Wyoming Inc (NYSE:GWR) has experienced an increase in enthusiasm from smart money lately. Our calculations also showed that GWR 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).
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. 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 already gained 20 percent. With all of this in mind we’re going to take a look at the new hedge fund action regarding Genesee & Wyoming Inc (NYSE:GWR).
How are hedge funds trading Genesee & Wyoming Inc (NYSE:GWR)?
At Q3’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GWR over the last 17 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of Genesee & Wyoming Inc (NYSE:GWR), with a stake worth $132.7 million reported as of the end of September. Trailing Millennium Management was Alpine Associates, which amassed a stake valued at $109.1 million. York Capital Management, Blue Harbour Group, and Cardinal Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Halcyon Asset Management allocated the biggest weight to Genesee & Wyoming Inc (NYSE:GWR), around 7.36% of its 13F portfolio. Sandell Asset Management is also relatively very bullish on the stock, dishing out 5.57 percent of its 13F equity portfolio to GWR.
Consequently, key hedge funds have been driving this bullishness. Alpine Associates, managed by Robert Emil Zoellner, created the most outsized position in Genesee & Wyoming Inc (NYSE:GWR). Alpine Associates had $109.1 million invested in the company at the end of the quarter. James Dinan’s York Capital Management also initiated a $92.7 million position during the quarter. The other funds with new positions in the stock are John Orrico’s Water Island Capital, John Bader’s Halcyon Asset Management, and John Thiessen’s Vertex One Asset Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Genesee & Wyoming Inc (NYSE:GWR) but similarly valued. We will take a look at Dr. Reddy’s Laboratories Limited (NYSE:RDY), The Madison Square Garden Company (NASDAQ:MSG), Morningstar, Inc. (NASDAQ:MORN), and Encompass Health Corporation (NYSE:EHC). All of these stocks’ market caps are similar to GWR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RDY | 13 | 95340 | 2 |
| MSG | 45 | 1729215 | -5 |
| MORN | 24 | 258250 | 4 |
| EHC | 22 | 423218 | -1 |
| Average | 26 | 626506 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $627 million. That figure was $784 million in GWR’s case. The Madison Square Garden Company (NASDAQ:MSG) is the most popular stock in this table. On the other hand Dr. Reddy’s Laboratories Limited (NYSE:RDY) is the least popular one with only 13 bullish hedge fund positions. Genesee & Wyoming Inc (NYSE:GWR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on GWR as the stock returned 50% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
