Were These Hedge Funds Wrong About Piling Into Glu Mobile Inc. (GLUU)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Glu Mobile Inc. (NASDAQ:GLUU).

Glu Mobile Inc. (NASDAQ:GLUU) has seen an increase in hedge fund sentiment in recent months. Glu Mobile Inc. (NASDAQ:GLUU) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that GLUU isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 58 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.

Philippe Laffont of Coatue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let’s view the new hedge fund action regarding Glu Mobile Inc. (NASDAQ:GLUU).

Hedge fund activity in Glu Mobile Inc. (NASDAQ:GLUU)

At the end of June, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 94% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in GLUU a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Among these funds, Shelter Haven Capital Management held the most valuable stake in Glu Mobile Inc. (NASDAQ:GLUU), which was worth $30.6 million at the end of the third quarter. On the second spot was Greenhouse Funds which amassed $27 million worth of shares. Arrowstreet Capital, Scopus Asset Management, and Renaissance Technologies 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 Shelter Haven Capital Management allocated the biggest weight to Glu Mobile Inc. (NASDAQ:GLUU), around 11.7% of its 13F portfolio. Greenhouse Funds is also relatively very bullish on the stock, dishing out 4.04 percent of its 13F equity portfolio to GLUU.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Shelter Haven Capital Management, managed by Jerry Kochanski, initiated the biggest position in Glu Mobile Inc. (NASDAQ:GLUU). Shelter Haven Capital Management had $30.6 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $20.9 million investment in the stock during the quarter. The following funds were also among the new GLUU investors: Anand Parekh’s Alyeska Investment Group, Israel Englander’s Millennium Management, and Richard Driehaus’s Driehaus Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Glu Mobile Inc. (NASDAQ:GLUU) but similarly valued. These stocks are O-I Glass, Inc. (NYSE:OI), Sapiens International Corporation N.V. (NASDAQ:SPNS), Cytokinetics, Inc. (NASDAQ:CYTK), Avanos Medical (NYSE:AVNS), Aurora Cannabis Inc. (NASDAQ:ACB), Silk Road Medical, Inc. (NASDAQ:SILK), and Renasant Corporation (NASDAQ:RNST). This group of stocks’ market valuations are closest to GLUU’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $236 million in GLUU’s case. Cytokinetics, Inc. (NASDAQ:CYTK) is the most popular stock in this table. On the other hand Sapiens International Corporation N.V. (NASDAQ:SPNS) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Glu Mobile Inc. (NASDAQ:GLUU) is more popular among hedge funds. Our overall hedge fund sentiment score for GLUU is 90. 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. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately GLUU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GLUU were disappointed as the stock returned -22.8% since the end of the second quarter (through 10/30) 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 in 2020.

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