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Did Hedge Funds Drop The Ball On GTT Communications Inc (GTT) ?

Is GTT Communications Inc (NYSE:GTT) 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.

GTT Communications Inc (NYSE:GTT) shareholders have witnessed an increase in activity from the world’s largest hedge funds lately. GTT was in 15 hedge funds’ portfolios at the end of December. There were 14 hedge funds in our database with GTT positions at the end of the previous quarter. Our calculations also showed that GTT isn’t among the 30 most popular stocks among hedge funds.

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 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.

Jeffrey Bronchick - Cove Street Capital

We’re going to take a glance at the fresh hedge fund action encompassing GTT Communications Inc (NYSE:GTT).

Hedge fund activity in GTT Communications Inc (NYSE:GTT)

At Q4’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards GTT over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

GTT_apr2019

When looking at the institutional investors followed by Insider Monkey, Spruce House Investment Management, managed by Zachary Sternberg and Benjamin Stein, holds the most valuable position in GTT Communications Inc (NYSE:GTT). Spruce House Investment Management has a $257.9 million position in the stock, comprising 11.9% of its 13F portfolio. The second most bullish fund manager is MFN Partners, led by Farhad Nanji and Michael DeMichele, holding a $23.7 million position; the fund has 4% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions consist of Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management, Jeffrey Bronchick’s Cove Street Capital and Joe DiMenna’s ZWEIG DIMENNA PARTNERS.

Consequently, key money managers have jumped into GTT Communications Inc (NYSE:GTT) headfirst. MFN Partners, managed by Farhad Nanji and Michael DeMichele, established the most valuable position in GTT Communications Inc (NYSE:GTT). MFN Partners had $23.7 million invested in the company at the end of the quarter. Eric Bannasch’s Cadian Capital also made a $2.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group, Daniel S. Och’s OZ Management, and Israel Englander’s Millennium Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as GTT Communications Inc (NYSE:GTT) but similarly valued. We will take a look at NutriSystem Inc. (NASDAQ:NTRI), Redfin Corporation (NASDAQ:RDFN), Hailiang Education Group Inc. (NASDAQ:HLG), and Synaptics Incorporated (NASDAQ:SYNA). This group of stocks’ market caps resemble GTT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NTRI 29 273976 11
RDFN 7 114016 -5
HLG 3 5620 -1
SYNA 15 111673 -2
Average 13.5 126321 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $350 million in GTT’s case. NutriSystem Inc. (NASDAQ:NTRI) is the most popular stock in this table. On the other hand Hailiang Education Group Inc. (NASDAQ:HLG) is the least popular one with only 3 bullish hedge fund positions. GTT Communications Inc (NYSE:GTT) 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 GTT as the stock returned 71.6% 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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