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Did Hedge Funds Drop The Ball On GDS Holdings Limited (GDS) ?

Is GDS Holdings Limited (NASDAQ:GDS) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to find the winners in the stock market.

Is GDS Holdings Limited (NASDAQ:GDS) worth your attention right now? Hedge funds are in a pessimistic mood. The number of long hedge fund bets decreased by 1 in recent months. Our calculations also showed that GDS isn’t among the 30 most popular stocks among hedge funds. GDS was in 25 hedge funds’ portfolios at the end of December. There were 26 hedge funds in our database with GDS positions at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

MOORE GLOBAL INVESTMENTS

We’re going to take a peek at the recent hedge fund action surrounding GDS Holdings Limited (NASDAQ:GDS).

How have hedgies been trading GDS Holdings Limited (NASDAQ:GDS)?

Heading into the first quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in GDS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

GDS_apr2019

When looking at the institutional investors followed by Insider Monkey, Joel Ramin’s 12 West Capital Management has the largest position in GDS Holdings Limited (NASDAQ:GDS), worth close to $247.4 million, amounting to 25.5% of its total 13F portfolio. Sitting at the No. 2 spot is Bridger Management, led by Roberto Mignone, holding a $32.1 million position; the fund has 2.7% of its 13F portfolio invested in the stock. Remaining peers that are bullish include Ted Kang’s Kylin Management, Louis Bacon’s Moore Global Investments and Phill Gross and Robert Atchinson’s Adage Capital Management.

Because GDS Holdings Limited (NASDAQ:GDS) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedge funds who were dropping their entire stakes last quarter. It’s worth mentioning that Jason Karp’s Tourbillon Capital Partners dropped the largest stake of the “upper crust” of funds followed by Insider Monkey, comprising about $42.1 million in stock. Alec Litowitz and Ross Laser’s fund, Magnetar Capital, also sold off its stock, about $5.7 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as GDS Holdings Limited (NASDAQ:GDS) but similarly valued. We will take a look at Yelp Inc (NYSE:YELP), Evercore Inc. (NYSE:EVR), Antero Resources Corp (NYSE:AR), and B2Gold Corp (NYSE:BTG). This group of stocks’ market caps are similar to GDS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YELP 24 577668 -6
EVR 24 303273 2
AR 22 920124 2
BTG 17 104860 3
Average 21.75 476481 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $476 million. That figure was $426 million in GDS’s case. Yelp Inc (NYSE:YELP) is the most popular stock in this table. On the other hand B2Gold Corp (NYSE:BTG) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks GDS Holdings Limited (NASDAQ:GDS) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on GDS as the stock returned 69% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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