Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Grand Canyon Education Inc (NASDAQ:LOPE).
Hedge fund interest in Grand Canyon Education Inc (NASDAQ:LOPE) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Micro Focus Intl PLC (NYSE:MFGP), H&R Block, Inc. (NYSE:HRB), and Tetra Tech, Inc. (NASDAQ:TTEK) to gather more data points. Our calculations also showed that LOPE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In today’s marketplace there are a large number of formulas stock traders put to use to appraise their stock investments. Some of the best formulas are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can beat the S&P 500 by a healthy amount (see the details here).
Joel Greenblatt of Gotham Asset Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s view the latest hedge fund action regarding Grand Canyon Education Inc (NASDAQ:LOPE).
What have hedge funds been doing with Grand Canyon Education Inc (NASDAQ:LOPE)?
At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in LOPE a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Grand Canyon Education Inc (NASDAQ:LOPE) was held by AQR Capital Management, which reported holding $21.3 million worth of stock at the end of September. It was followed by Intrinsic Edge Capital with a $16.1 million position. Other investors bullish on the company included Renaissance Technologies, Citadel Investment Group, and D E Shaw. In terms of the portfolio weights assigned to each position Sabrepoint Capital allocated the biggest weight to Grand Canyon Education Inc (NASDAQ:LOPE), around 4.16% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, dishing out 3.6 percent of its 13F equity portfolio to LOPE.
Because Grand Canyon Education Inc (NASDAQ:LOPE) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of hedgies who were dropping their entire stakes by the end of the third quarter. Intriguingly, Principal Global Investors’s Columbus Circle Investors cut the biggest position of all the hedgies followed by Insider Monkey, worth an estimated $32.2 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund dropped about $4.5 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Grand Canyon Education Inc (NASDAQ:LOPE). We will take a look at Micro Focus Intl PLC (NYSE:MFGP), H&R Block, Inc. (NYSE:HRB), Tetra Tech, Inc. (NASDAQ:TTEK), and The New York Times Company (NYSE:NYT). This group of stocks’ market valuations resemble LOPE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MFGP | 6 | 21086 | 0 |
| HRB | 21 | 321850 | -4 |
| TTEK | 21 | 123653 | -1 |
| NYT | 37 | 1186018 | -4 |
| Average | 21.25 | 413152 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $413 million. That figure was $108 million in LOPE’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand Micro Focus Intl PLC (NYSE:MFGP) is the least popular one with only 6 bullish hedge fund positions. Grand Canyon Education Inc (NASDAQ:LOPE) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately LOPE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LOPE were disappointed as the stock returned -13.2% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
