Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards BGC Partners, Inc. (NASDAQ:BGCP).
Is BGC Partners, Inc. (NASDAQ:BGCP) a splendid investment now? The smart money is becoming hopeful. The number of bullish hedge fund bets inched up by 5 in recent months. Our calculations also showed that BGCP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). BGCP was in 27 hedge funds’ portfolios at the end of December. There were 22 hedge funds in our database with BGCP positions at the end of the previous quarter.
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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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.
Steven Cohen of Point72 Asset Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s go over the latest hedge fund action encompassing BGC Partners, Inc. (NASDAQ:BGCP).
How have hedgies been trading BGC Partners, Inc. (NASDAQ:BGCP)?
At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BGCP over the last 18 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, Cardinal Capital held the most valuable stake in BGC Partners, Inc. (NASDAQ:BGCP), which was worth $88.7 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $47.5 million worth of shares. Rubric Capital Management, Soros Fund Management, and Alyeska Investment Group 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 Rubric Capital Management allocated the biggest weight to BGC Partners, Inc. (NASDAQ:BGCP), around 4.63% of its 13F portfolio. Cruiser Capital Advisors is also relatively very bullish on the stock, setting aside 4.36 percent of its 13F equity portfolio to BGCP.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into BGC Partners, Inc. (NASDAQ:BGCP) headfirst. PDT Partners, managed by Peter Muller, created the largest position in BGC Partners, Inc. (NASDAQ:BGCP). PDT Partners had $0.8 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $0.6 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Mike Vranos’s Ellington, and Donald Sussman’s Paloma Partners.
Let’s now take a look at hedge fund activity in other stocks similar to BGC Partners, Inc. (NASDAQ:BGCP). These stocks are Shenandoah Telecommunications Company (NASDAQ:SHEN), Installed Building Products Inc (NYSE:IBP), Compass Minerals International, Inc. (NYSE:CMP), and Pretium Resources Inc (NYSE:PVG). This group of stocks’ market values resemble BGCP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SHEN | 10 | 81260 | -7 |
| IBP | 24 | 178875 | 3 |
| CMP | 13 | 164740 | -2 |
| PVG | 24 | 120345 | 2 |
| Average | 17.75 | 136305 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $293 million in BGCP’s case. Installed Building Products Inc (NYSE:IBP) is the most popular stock in this table. On the other hand Shenandoah Telecommunications Company (NASDAQ:SHEN) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks BGC Partners, Inc. (NASDAQ:BGCP) 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. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately BGCP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BGCP were disappointed as the stock returned -56.4% during the three months of 2020 (through April 6th) and underperformed 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 most of these stocks already outperformed the market in 2020.
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.
