Were Hedge Funds Right About Dumping GATX Corporation (GATX)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards GATX Corporation (NYSE:GATX) and determine whether hedge funds skillfully traded this stock.

GATX Corporation (NYSE:GATX) was in 13 hedge funds’ portfolios at the end of March. GATX has experienced a decrease in support from the world’s most elite money managers recently. There were 21 hedge funds in our database with GATX positions at the end of the previous quarter. Our calculations also showed that GATX 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.

In the eyes of most traders, hedge funds are viewed as slow, old financial vehicles of yesteryear. While there are greater than 8000 funds trading today, Our experts choose to focus on the crème de la crème of this group, around 850 funds. These money managers administer most of all hedge funds’ total capital, and by shadowing their top picks, Insider Monkey has uncovered several investment strategies that have historically exceeded Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 9 states that banned plastic bags to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the recent hedge fund action regarding GATX Corporation (NYSE:GATX).

Hedge fund activity in GATX Corporation (NYSE:GATX)

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -38% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in GATX 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.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mario Gabelli’s GAMCO Investors has the largest position in GATX Corporation (NYSE:GATX), worth close to $127.4 million, corresponding to 1.5% of its total 13F portfolio. On GAMCO Investors’s heels is Citadel Investment Group, led by Ken Griffin, holding a $12.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions comprise Cliff Asness’s AQR Capital Management, David Harding’s Winton Capital Management and Gregg Moskowitz’s Interval Partners. In terms of the portfolio weights assigned to each position Spindletop Capital allocated the biggest weight to GATX Corporation (NYSE:GATX), around 1.63% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, setting aside 1.51 percent of its 13F equity portfolio to GATX.

Judging by the fact that GATX Corporation (NYSE:GATX) has faced falling interest from the smart money, we can see that there lies a certain “tier” of hedge funds that slashed their entire stakes by the end of the first quarter. It’s worth mentioning that Israel Englander’s Millennium Management dumped the largest investment of the 750 funds watched by Insider Monkey, valued at about $2 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dropped its stock, about $2 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 8 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks similar to GATX Corporation (NYSE:GATX). We will take a look at Franklin Electric Co. (NASDAQ:FELE), Sprouts Farmers Market Inc (NASDAQ:SFM), Axsome Therapeutics, Inc. (NASDAQ:AXSM), and MyoKardia, Inc. (NASDAQ:MYOK). This group of stocks’ market valuations are similar to GATX’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 $377 million. That figure was $169 million in GATX’s case. MyoKardia, Inc. (NASDAQ:MYOK) is the most popular stock in this table. On the other hand Franklin Electric Co. (NASDAQ:FELE) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks GATX Corporation (NYSE:GATX) is even less popular than FELE. Hedge funds dodged a bullet by taking a bearish stance towards GATX. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately GATX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); GATX investors were disappointed as the stock returned -3.1% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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