Gain Capital Holdings Inc (GCAP): Hedge Funds In Wait-and-See Mode

Is Gain Capital Holdings Inc (NYSE:GCAP) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. 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 predict the winners in the stock market.

Hedge fund interest in Gain Capital Holdings Inc (NYSE:GCAP) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare GCAP to other stocks including Ideanomics, Inc. (NASDAQ:IDEX), The Bank of Princeton (NASDAQ:BPRN), and Evelo Biosciences, Inc. (NASDAQ:EVLO) to get a better sense of its popularity.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AlphaOne Capital Partners' Returns, AUM and Holdings

Paul Hondros of AlphaOne Capital Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the recent hedge fund action surrounding Gain Capital Holdings Inc (NYSE:GCAP).

How have hedgies been trading Gain Capital Holdings Inc (NYSE:GCAP)?

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in GCAP a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in Gain Capital Holdings Inc (NYSE:GCAP) was held by Rima Senvest Management, which reported holding $14.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $4.3 million position. Other investors bullish on the company included Royce & Associates, Winton Capital Management, and AlphaOne Capital Partners. In terms of the portfolio weights assigned to each position Rima Senvest Management allocated the biggest weight to Gain Capital Holdings Inc (NYSE:GCAP), around 1.25% of its 13F portfolio. AlphaOne Capital Partners is also relatively very bullish on the stock, earmarking 0.41 percent of its 13F equity portfolio to GCAP.

Since Gain Capital Holdings Inc (NYSE:GCAP) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of funds who sold off their positions entirely heading into Q4. Intriguingly, Claes Fornell’s CSat Investment Advisory said goodbye to the largest stake of the 750 funds followed by Insider Monkey, valued at an estimated $0.3 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also cut its stock, about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Gain Capital Holdings Inc (NYSE:GCAP). We will take a look at Ideanomics, Inc. (NASDAQ:IDEX), The Bank of Princeton (NASDAQ:BPRN), Evelo Biosciences, Inc. (NASDAQ:EVLO), and Graham Corporation (NYSE:GHM). This group of stocks’ market values are closest to GCAP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IDEX 1 23 -3
BPRN 2 14551 -1
EVLO 5 6105 3
GHM 8 21270 1
Average 4 10487 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $21 million in GCAP’s case. Graham Corporation (NYSE:GHM) is the most popular stock in this table. On the other hand Ideanomics, Inc. (NASDAQ:IDEX) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Gain Capital Holdings Inc (NYSE:GCAP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GCAP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GCAP were disappointed as the stock returned -21.4% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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