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Did Hedge Funds Drop The Ball On Group 1 Automotive, Inc. (GPI) ?

Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 15 S&P 500 stocks among hedge funds at the end of December 2018 yielded an average return of 19.7% year-to-date, vs. a gain of 13.1% for the S&P 500 Index. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Group 1 Automotive, Inc. (NYSE:GPI).

Is Group 1 Automotive, Inc. (NYSE:GPI) worth your attention right now? Hedge funds are taking a bearish view. The number of long hedge fund bets were cut by 12 in recent months. Our calculations also showed that GPI isn’t among the 30 most popular stocks among hedge funds. GPI was in 9 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 21 hedge funds in our database with GPI positions at the end of the previous quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Phill Gross, Adage Capital Management

We’re going to take a look at the recent hedge fund action encompassing Group 1 Automotive, Inc. (NYSE:GPI).

What does the smart money think about Group 1 Automotive, Inc. (NYSE:GPI)?

Heading into the first quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -57% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GPI over the last 14 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

GPI_apr2019

The largest stake in Group 1 Automotive, Inc. (NYSE:GPI) was held by Eminence Capital, which reported holding $58.9 million worth of stock at the end of December. It was followed by Marshall Wace LLP with a $15.5 million position. Other investors bullish on the company included Citadel Investment Group, Gotham Asset Management, and Adage Capital Management.

Because Group 1 Automotive, Inc. (NYSE:GPI) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few hedgies who were dropping their entire stakes by the end of the third quarter. It’s worth mentioning that Noam Gottesman’s GLG Partners said goodbye to the largest stake of all the hedgies followed by Insider Monkey, valued at about $8.9 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund dropped about $1.2 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 12 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to Group 1 Automotive, Inc. (NYSE:GPI). These stocks are World Acceptance Corp. (NASDAQ:WRLD), TTM Technologies, Inc. (NASDAQ:TTMI), KEMET Corporation (NYSE:KEM), and Camping World Holdings, Inc. (NYSE:CWH). This group of stocks’ market caps match GPI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WRLD 16 217084 6
TTMI 15 35723 -1
KEM 21 159175 1
CWH 11 71232 -6
Average 15.75 120804 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $101 million in GPI’s case. KEMET Corporation (NYSE:KEM) is the most popular stock in this table. On the other hand Camping World Holdings, Inc. (NYSE:CWH) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Group 1 Automotive, Inc. (NYSE:GPI) is even less popular than CWH. Hedge funds clearly dropped the ball on GPI as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on GPI as the stock returned 33.1% and outperformed the market by an even larger margin.

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

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