Is Genpact Limited (G) Going to Burn These Hedge Funds?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Genpact Limited (NYSE:G).

Genpact Limited (NYSE:G) was in 34 hedge funds’ portfolios at the end of March. G investors should be aware of a decrease in support from the world’s most elite money managers lately. There were 37 hedge funds in our database with G holdings at the end of the previous quarter. Our calculations also showed that G isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by 51 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.

Bruce Kovner of Caxton Associates LP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the new hedge fund action regarding Genpact Limited (NYSE:G).

How are hedge funds trading Genpact Limited (NYSE:G)?

At the end of the first quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the fourth quarter of 2019. By comparison, 29 hedge funds held shares or bullish call options in G a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, D. E. Shaw’s D E Shaw has the number one position in Genpact Limited (NYSE:G), worth close to $84.3 million, amounting to 0.1% of its total 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $52.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions consist of Alok Agrawal’s Bloom Tree Partners, John Overdeck and David Siegel’s Two Sigma Advisors and Richard S. Pzena’s Pzena Investment Management. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Genpact Limited (NYSE:G), around 9.59% of its 13F portfolio. Bloom Tree Partners is also relatively very bullish on the stock, designating 5.27 percent of its 13F equity portfolio to G.

Judging by the fact that Genpact Limited (NYSE:G) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of funds who sold off their positions entirely last quarter. It’s worth mentioning that Greg Poole’s Echo Street Capital Management dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising close to $12.5 million in stock, and Charles Clough’s Clough Capital Partners was right behind this move, as the fund dropped about $9 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Genpact Limited (NYSE:G). These stocks are National Retail Properties, Inc. (NYSE:NNN), Bruker Corporation (NASDAQ:BRKR), Lumentum Holdings Inc (NASDAQ:LITE), and Dolby Laboratories, Inc. (NYSE:DLB). This group of stocks’ market valuations are closest to G’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $258 million. That figure was $335 million in G’s case. Lumentum Holdings Inc (NASDAQ:LITE) is the most popular stock in this table. On the other hand National Retail Properties, Inc. (NYSE:NNN) is the least popular one with only 19 bullish hedge fund positions. Genpact Limited (NYSE:G) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on G as the stock returned 23.1% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.