Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards GreenSky, Inc. (NASDAQ:GSKY).
Is GSKY a good stock to buy now? GreenSky, Inc. (NASDAQ:GSKY) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. GreenSky, Inc. (NASDAQ:GSKY) was in 12 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 25. Our calculations also showed that GSKY isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to analyze the fresh hedge fund action surrounding GreenSky, Inc. (NASDAQ:GSKY).
Do Hedge Funds Think GSKY Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in GSKY a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Adage Capital Management held the most valuable stake in GreenSky, Inc. (NASDAQ:GSKY), which was worth $10.9 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $4.2 million worth of shares. Kayak Investment Partners, D E Shaw, and Winton Capital Management 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 Kayak Investment Partners allocated the biggest weight to GreenSky, Inc. (NASDAQ:GSKY), around 0.4% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to GSKY.
Judging by the fact that GreenSky, Inc. (NASDAQ:GSKY) has experienced falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers that decided to sell off their full holdings in the third quarter. It’s worth mentioning that Ravi Chopra’s Azora Capital sold off the largest stake of the 750 funds monitored by Insider Monkey, valued at an estimated $2.2 million in stock. Israel Englander’s fund, Millennium Management, also said goodbye to its stock, about $0.3 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to GreenSky, Inc. (NASDAQ:GSKY). These stocks are Associated Capital Group, Inc. (NYSE:AC), Endurance International Group Holdings Inc (NASDAQ:EIGI), Southside Bancshares, Inc. (NASDAQ:SBSI), Provident Financial Services, Inc. (NYSE:PFS), Pliant Therapeutics, Inc. (NASDAQ:PLRX), National Bank Holdings Corp (NYSE:NBHC), and Taysha Gene Therapies, Inc. (NASDAQ:TSHA). This group of stocks’ market caps are closest to GSKY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AC | 5 | 56413 | 0 |
| EIGI | 16 | 95183 | 1 |
| SBSI | 8 | 31525 | -3 |
| PFS | 10 | 18111 | 0 |
| PLRX | 11 | 157744 | -2 |
| NBHC | 6 | 45405 | 1 |
| TSHA | 15 | 72542 | 15 |
| Average | 10.1 | 68132 | 1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.1 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $23 million in GSKY’s case. Endurance International Group Holdings Inc (NASDAQ:EIGI) is the most popular stock in this table. On the other hand Associated Capital Group, Inc. (NYSE:AC) is the least popular one with only 5 bullish hedge fund positions. GreenSky, Inc. (NASDAQ:GSKY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GSKY is 50.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately GSKY wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GSKY were disappointed as the stock returned -0.5% since the end of September (through 12/8) 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.
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Disclosure: None. This article was originally published at Insider Monkey.
