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Did Hedge Funds Drop The Ball On Griffon Corporation (GFF) ?

We at Insider Monkey have gone over 700 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Griffon Corporation (NYSE:GFF) based on that data.

Griffon Corporation (NYSE:GFF) was in 14 hedge funds’ portfolios at the end of the fourth quarter of 2018. GFF has experienced a decrease in hedge fund interest in recent months. There were 15 hedge funds in our database with GFF holdings at the end of the previous quarter. Our calculations also showed that gff isn’t among the 30 most popular stocks among hedge funds.

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.

Mario Gabelli with cereal box

Let’s take a look at the key hedge fund action regarding Griffon Corporation (NYSE:GFF).

How have hedgies been trading Griffon Corporation (NYSE:GFF)?

At the end of the fourth quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in GFF a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

No of Hedge Funds with GFF Positions

Of the funds tracked by Insider Monkey, Mario Gabelli’s GAMCO Investors has the number one position in Griffon Corporation (NYSE:GFF), worth close to $56.4 million, accounting for 0.5% of its total 13F portfolio. The second most bullish fund manager is Royce & Associates, led by Chuck Royce, holding a $10.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish comprise Paul Marshall and Ian Wace’s Marshall Wace LLP, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group.

Judging by the fact that Griffon Corporation (NYSE:GFF) has faced bearish sentiment from hedge fund managers, logic holds that there was a specific group of funds that decided to sell off their full holdings heading into Q3. Intriguingly, David Rodriguez-Fraile’s BlueMar Capital Management said goodbye to the largest position of the “upper crust” of funds tracked by Insider Monkey, totaling about $1 million in stock, and Matthew Halbower’s Pentwater Capital Management was right behind this move, as the fund dumped about $0.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Griffon Corporation (NYSE:GFF). These stocks are Waterstone Financial, Inc. (NASDAQ:WSBF), Puxin Limited (NYSE:NEW), Boot Barn Holdings Inc (NYSE:BOOT), and Petmed Express Inc (NASDAQ:PETS). This group of stocks’ market valuations resemble GFF’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WSBF 9 78878 0
NEW 4 7701 -1
BOOT 19 77919 -3
PETS 15 90720 -3
Average 11.75 63805 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $78 million in GFF’s case. Boot Barn Holdings Inc (NYSE:BOOT) is the most popular stock in this table. On the other hand Puxin Limited (NYSE:NEW) is the least popular one with only 4 bullish hedge fund positions. Griffon Corporation (NYSE:GFF) is not the most popular stock in this group but hedge fund interest is still above average. 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 GFF as the stock returned 85.4% 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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