We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 GTY Technology Holdings, Inc. (NASDAQ:GTYH).
GTY Technology Holdings, Inc. (NASDAQ:GTYH) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of September. 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 Metropolitan Bank Holding Corp. (NYSE:MCB), Diana Shipping Inc. (NYSE:DSX), and Kadmon Holdings, Inc. (NYSE:KDMN) to gather more data points. Our calculations also showed that GTYH 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bill Miller of Miller Value Partners
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s review the new hedge fund action encompassing GTY Technology Holdings, Inc. (NASDAQ:GTYH).
Hedge fund activity in GTY Technology Holdings, Inc. (NASDAQ:GTYH)
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in GTYH a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Bill Miller’s Miller Value Partners has the number one position in GTY Technology Holdings, Inc. (NASDAQ:GTYH), worth close to $11.6 million, amounting to 0.5% of its total 13F portfolio. The second most bullish fund manager is Kingdon Capital, led by Mark Kingdon, holding a $7.5 million position; 0.9% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish include Anand Parekh’s Alyeska Investment Group, John A. Levin’s Levin Capital Strategies and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Kingdon Capital allocated the biggest weight to GTY Technology Holdings, Inc. (NASDAQ:GTYH), around 0.89% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, designating 0.47 percent of its 13F equity portfolio to GTYH.
Since GTY Technology Holdings, Inc. (NASDAQ:GTYH) has experienced declining sentiment from the smart money, logic holds that there were a few hedgies who sold off their entire stakes last quarter. It’s worth mentioning that Israel Englander’s Millennium Management sold off the largest stake of the “upper crust” of funds watched by Insider Monkey, worth about $1.5 million in call options, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund cut about $0 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to GTY Technology Holdings, Inc. (NASDAQ:GTYH). These stocks are Metropolitan Bank Holding Corp. (NYSE:MCB), Diana Shipping Inc. (NYSE:DSX), Kadmon Holdings, Inc. (NYSE:KDMN), and Business First Bancshares, Inc. (NASDAQ:BFST). This group of stocks’ market values resemble GTYH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MCB | 8 | 56934 | 2 |
| DSX | 9 | 25661 | 0 |
| KDMN | 15 | 144793 | 0 |
| BFST | 2 | 14267 | 1 |
| Average | 8.5 | 60414 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $20 million in GTYH’s case. Kadmon Holdings, Inc. (NYSE:KDMN) is the most popular stock in this table. On the other hand Business First Bancshares, Inc. (NASDAQ:BFST) is the least popular one with only 2 bullish hedge fund positions. GTY Technology Holdings, Inc. (NASDAQ:GTYH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 GTYH wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GTYH investors were disappointed as the stock returned -21.4% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
