How Did Graphic Packaging Holding Company (GPK) Compare Against Top Hedge Fund Stocks in 2019?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Graphic Packaging Holding Company (NYSE:GPK).

Graphic Packaging Holding Company (NYSE:GPK) has experienced an increase in support from the world’s most elite money managers of late. GPK was in 33 hedge funds’ portfolios at the end of September. There were 30 hedge funds in our database with GPK holdings at the end of the previous quarter. Our calculations also showed that GPK 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’ 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.

Ken Griffin of Citadel Investment Group

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 let’s take a look at the new hedge fund action encompassing Graphic Packaging Holding Company (NYSE:GPK).

What have hedge funds been doing with Graphic Packaging Holding Company (NYSE:GPK)?

At Q3’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GPK over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in Graphic Packaging Holding Company (NYSE:GPK), which was worth $152.9 million at the end of the third quarter. On the second spot was Maverick Capital which amassed $137.9 million worth of shares. Kettle Hill Capital Management, D E Shaw, and 12th Street Asset Management 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 Kettle Hill Capital Management allocated the biggest weight to Graphic Packaging Holding Company (NYSE:GPK), around 11.31% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, dishing out 5.97 percent of its 13F equity portfolio to GPK.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. York Capital Management, managed by James Dinan, initiated the biggest position in Graphic Packaging Holding Company (NYSE:GPK). York Capital Management had $12.2 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $3 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Muller’s PDT Partners, Benjamin A. Smith’s Laurion Capital Management, and Michael Gelband’s ExodusPoint Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Graphic Packaging Holding Company (NYSE:GPK) but similarly valued. These stocks are Healthcare Realty Trust Inc (NYSE:HR), Webster Financial Corporation (NYSE:WBS), Telecom Argentina S.A. (NYSE:TEO), and Spirit Realty Capital Inc (NYSE:SRC). This group of stocks’ market caps are similar to GPK’s market cap.

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As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $500 million in GPK’s case. Webster Financial Corporation (NYSE:WBS) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Graphic Packaging Holding Company (NYSE:GPK) is more popular among hedge funds. 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 GPK as the stock returned 61.2% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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.