2018’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.3% in 2019 and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards GW Pharmaceuticals plc (NASDAQ:GWPH), one of the biggest marijuana companies in the world, changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
GW Pharmaceuticals plc (NASDAQ:GWPH) has experienced an increase in hedge fund sentiment lately. GWPH was in 29 hedge funds’ portfolios at the end of the third quarter of 2019. There were 16 hedge funds in our database with GWPH holdings at the end of the previous quarter. Our calculations also showed that GWPH 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).
Why do we pay any attention at all to hedge fund sentiment? 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.
Felix Baker of Baker Bros.
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. With all of this in mind we’re going to take a look at the fresh hedge fund action encompassing GW Pharmaceuticals plc (NASDAQ:GWPH).
How have hedgies been trading GW Pharmaceuticals plc (NASDAQ:GWPH)?
Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 81% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in GWPH over the last 17 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in GW Pharmaceuticals plc (NASDAQ:GWPH), which was worth $115.1 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $104.8 million worth of shares. Millennium Management, Baker Bros. Advisors, and Renaissance Technologies 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 Sio Capital allocated the biggest weight to GW Pharmaceuticals plc (NASDAQ:GWPH), around 6.66% of its 13F portfolio. Pura Vida Investments is also relatively very bullish on the stock, designating 1.21 percent of its 13F equity portfolio to GWPH.
As aggregate interest increased, specific money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, established the most valuable position in GW Pharmaceuticals plc (NASDAQ:GWPH). Millennium Management had $98.2 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $72.5 million investment in the stock during the quarter. The following funds were also among the new GWPH investors: Renaissance Technologies, Brandon Haley’s Holocene Advisors, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as GW Pharmaceuticals plc (NASDAQ:GWPH) but similarly valued. We will take a look at Teradata Corporation (NYSE:TDC), BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ), Graham Holdings Co (NYSE:GHC), and Clearway Energy, Inc. (NYSE:CWEN). This group of stocks’ market values resemble GWPH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TDC | 20 | 247413 | -2 |
| BJ | 23 | 275625 | -10 |
| GHC | 17 | 551698 | 2 |
| CWEN | 20 | 182276 | 1 |
| Average | 20 | 314253 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $314 million. That figure was $509 million in GWPH’s case. BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) is the most popular stock in this table. On the other hand Graham Holdings Co (NYSE:GHC) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks GW Pharmaceuticals plc (NASDAQ:GWPH) is more popular among hedge funds. 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 GWPH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GWPH were disappointed as the stock returned 7.4% 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 65 percent of these stocks outperformed the market in 2019.
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.
