Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2014) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like GenMark Diagnostics, Inc (NASDAQ:GNMK).
GenMark Diagnostics, Inc (NASDAQ:GNMK) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of the third quarter of 2018. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Plug Power, Inc. (NASDAQ:PLUG), , and to gather more data points.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to take a peek at the key hedge fund action surrounding GenMark Diagnostics, Inc (NASDAQ:GNMK).
What does the smart money think about GenMark Diagnostics, Inc (NASDAQ:GNMK)?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, no change from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in GNMK heading into this year. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Cadian Capital, managed by Eric Bannasch, holds the largest position in GenMark Diagnostics, Inc (NASDAQ:GNMK). Cadian Capital has a $28.2 million position in the stock, comprising 1.3% of its 13F portfolio. On Cadian Capital’s heels is Casdin Capital, led by Eli Casdin, holding a $25.7 million position; the fund has 3.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions encompass Israel Englander’s Millennium Management, Anand Parekh’s Alyeska Investment Group and D. E. Shaw’s D E Shaw.
Due to the fact that GenMark Diagnostics, Inc (NASDAQ:GNMK) has faced bearish sentiment from the smart money, logic holds that there exists a select few hedgies that slashed their full holdings by the end of the third quarter. Interestingly, Noam Gottesman’s GLG Partners dumped the biggest position of the “upper crust” of funds tracked by Insider Monkey, valued at about $0.1 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $0.1 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to GenMark Diagnostics, Inc (NASDAQ:GNMK). These stocks are Plug Power, Inc. (NASDAQ:PLUG), PolarityTE, Inc. (NASDAQ:PTE), Goldman Sachs MLP Income Opportunities Fund (NYSE:GMZ), and Home Bancorp, Inc. (NASDAQ:HBCP). This group of stocks’ market caps resemble GNMK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PLUG | 7 | 15813 | 1 |
| PTE | 14 | 104461 | 1 |
| GMZ | 1 | 263 | 1 |
| HBCP | 3 | 10988 | 0 |
| Average | 6.25 | 32881 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $67 million in GNMK’s case. PolarityTE, Inc. (NASDAQ:PTE) is the most popular stock in this table. On the other hand Goldman Sachs MLP Income Opportunities Fund (NYSE:GMZ) is the least popular one with only 1 bullish hedge fund positions. GenMark Diagnostics, Inc (NASDAQ:GNMK) 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. In this regard PTE might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
