Did Hedge Funds Make The Right Call On Genpact Limited (G)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Genpact Limited (NYSE:G) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Genpact Limited (NYSE:G) investors should pay attention to a decrease in hedge fund interest in recent months. Our calculations also showed that G isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most market participants, hedge funds are assumed to be worthless, old investment vehicles of yesteryear. While there are more than 8000 funds in operation at present, Our researchers choose to focus on the top tier of this club, about 850 funds. These investment experts watch over bulk of all hedge funds’ total capital, and by watching their finest stock picks, Insider Monkey has uncovered many investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the latest hedge fund action encompassing Genpact Limited (NYSE:G).

How are hedge funds trading Genpact Limited (NYSE:G)?

At the end of the first quarter, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in G a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is G A Good Stock To Buy?

Among these funds, D E Shaw held the most valuable stake in Genpact Limited (NYSE:G), which was worth $84.3 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $52.5 million worth of shares. Bloom Tree Partners, Two Sigma Advisors, and Pzena Investment Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Genpact Limited (NYSE:G), around 9.59% of its 13F portfolio. Bloom Tree Partners is also relatively very bullish on the stock, setting aside 5.27 percent of its 13F equity portfolio to G.

Since Genpact Limited (NYSE:G) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedgies who were dropping their positions entirely heading into Q4. It’s worth mentioning that Greg Poole’s Echo Street Capital Management dropped the biggest stake of the 750 funds tracked by Insider Monkey, totaling about $12.5 million in stock. Charles Clough’s fund, Clough Capital Partners, also cut its stock, about $9 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Genpact Limited (NYSE:G) but similarly valued. These stocks are National Retail Properties, Inc. (NYSE:NNN), Bruker Corporation (NASDAQ:BRKR), Lumentum Holdings Inc (NASDAQ:LITE), and Dolby Laboratories, Inc. (NYSE:DLB). All of these stocks’ market caps resemble G’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NNN 19 62007 -4
BRKR 21 109920 -4
LITE 34 487864 -3
DLB 29 374056 -2
Average 25.75 258462 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $258 million. That figure was $335 million in G’s case. Lumentum Holdings Inc (NASDAQ:LITE) is the most popular stock in this table. On the other hand National Retail Properties, Inc. (NYSE:NNN) is the least popular one with only 19 bullish hedge fund positions. Genpact Limited (NYSE:G) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on G, though not to the same extent, as the stock returned 25.4% during the second quarter and outperformed the market as well.

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