Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of W.R. Grace & Co. (NYSE:GRA).
W.R. Grace & Co. (NYSE:GRA) was in 35 hedge funds’ portfolios at the end of the first quarter of 2020. GRA has seen a decrease in support from the world’s most elite money managers of late. There were 46 hedge funds in our database with GRA holdings at the end of the previous quarter. Our calculations also showed that GRA 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.
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 S&P 500 ETFs by 51 percentage points since March 2017 (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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the key hedge fund action regarding W.R. Grace & Co. (NYSE:GRA).
What does smart money think about W.R. Grace & Co. (NYSE:GRA)?
Heading into the second quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GRA over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, 40 North Management held the most valuable stake in W.R. Grace & Co. (NYSE:GRA), which was worth $351.2 million at the end of the third quarter. On the second spot was Soroban Capital Partners which amassed $97.2 million worth of shares. Diamond Hill Capital, Cantillon Capital Management, and Gates Capital 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 40 North Management allocated the biggest weight to W.R. Grace & Co. (NYSE:GRA), around 21.38% of its 13F portfolio. Birch Run Capital is also relatively very bullish on the stock, designating 5.06 percent of its 13F equity portfolio to GRA.
Due to the fact that W.R. Grace & Co. (NYSE:GRA) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedge funds who were dropping their full holdings by the end of the third quarter. Interestingly, Jacob Doft’s Highline Capital Management dumped the largest stake of the 750 funds watched by Insider Monkey, totaling about $41.9 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $32.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 11 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as W.R. Grace & Co. (NYSE:GRA) but similarly valued. We will take a look at Amicus Therapeutics, Inc. (NASDAQ:FOLD), Envista Holdings Corporation (NYSE:NVST), Tripadvisor Inc (NASDAQ:TRIP), and Tegna Inc (NYSE:TGNA). This group of stocks’ market caps resemble GRA’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $496 million. That figure was $866 million in GRA’s case. Tripadvisor Inc (NASDAQ:TRIP) is the most popular stock in this table. On the other hand Envista Holdings Corporation (NYSE:NVST) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks W.R. Grace & Co. (NYSE:GRA) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on GRA as the stock returned 47.5% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.