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Hedge Funds Dropped The Ball On Generac Holdings (GNRC)

Is Generac Holdings Inc. (NYSE:GNRC) 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 predict the winners in the stock market.

Generac Holdings Inc. (NYSE:GNRC) has experienced a decrease in hedge fund interest in recent months. Our calculations also showed that GNRC isn’t among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

TUDOR INVESTMENT CORP

Let’s take a look at the key hedge fund action surrounding Generac Holdings Inc. (NYSE:GNRC).

How are hedge funds trading Generac Holdings Inc. (NYSE:GNRC)?

Heading into the second quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in GNRC a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

GNRC_june2019

More specifically, Impax Asset Management was the largest shareholder of Generac Holdings Inc. (NYSE:GNRC), with a stake worth $52.6 million reported as of the end of March. Trailing Impax Asset Management was Arrowstreet Capital, which amassed a stake valued at $24 million. Renaissance Technologies, Ariel Investments, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Since Generac Holdings Inc. (NYSE:GNRC) has experienced falling interest from the smart money, we can see that there was a specific group of funds that slashed their positions entirely in the third quarter. At the top of the heap, Eduardo Abush’s Waterfront Capital Partners cut the largest stake of the 700 funds followed by Insider Monkey, worth close to $8.7 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund dumped about $4.9 million worth. These transactions are interesting, as total hedge fund interest was cut by 4 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Generac Holdings Inc. (NYSE:GNRC). We will take a look at Valley National Bancorp (NASDAQ:VLY), FS KKR Capital Corp. (NYSE:FSK), Apergy Corporation (NYSE:APY), and Manchester United PLC (NYSE:MANU). This group of stocks’ market values match GNRC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VLY 11 26971 3
FSK 19 202328 -1
APY 12 126003 -1
MANU 11 51988 2
Average 13.25 101823 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. That figure was $145 million in GNRC’s case. FS KKR Capital Corp. (NYSE:FSK) is the most popular stock in this table. On the other hand Valley National Bancorp (NASDAQ:VLY) is the least popular one with only 11 bullish hedge fund positions. Generac Holdings Inc. (NYSE:GNRC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on GNRC as the stock returned 28.5% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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