Graf Industrial Corp. (GRAF): Hedge Funds Cutting Exposure

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Graf Industrial Corp. (NYSE:GRAF) and determine whether hedge funds skillfully traded this stock.

Graf Industrial Corp. (NYSE:GRAF) was in 11 hedge funds’ portfolios at the end of March. GRAF investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. There were 12 hedge funds in our database with GRAF holdings at the end of the previous quarter. Our calculations also showed that GRAF 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.

To the average investor there are plenty of indicators investors have at their disposal to evaluate stocks. Two of the most innovative indicators are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the best fund managers can trounce the S&P 500 by a solid amount (see the details here).

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. Keeping this in mind we’re going to view the key hedge fund action encompassing Graf Industrial Corp. (NYSE:GRAF).

How are hedge funds trading Graf Industrial Corp. (NYSE:GRAF)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in GRAF a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is GRAF A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Glazer Capital, managed by Paul Glazer, holds the largest position in Graf Industrial Corp. (NYSE:GRAF). Glazer Capital has a $39.5 million position in the stock, comprising 2.6% of its 13F portfolio. Coming in second is Magnetar Capital, led by Alec Litowitz and Ross Laser, holding a $25.7 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions contain Steven Clark’s Omni Partners, Steve Pigott’s Fort Baker Capital Management and Paul Marshall and Ian Wace’s Marshall Wace LLP. In terms of the portfolio weights assigned to each position Fort Baker Capital Management allocated the biggest weight to Graf Industrial Corp. (NYSE:GRAF), around 12.18% of its 13F portfolio. Glazer Capital is also relatively very bullish on the stock, setting aside 2.63 percent of its 13F equity portfolio to GRAF.

Since Graf Industrial Corp. (NYSE:GRAF) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few hedgies who sold off their full holdings by the end of the first quarter. Interestingly, John Thiessen’s Vertex One Asset Management sold off the largest position of all the hedgies watched by Insider Monkey, worth an estimated $3.2 million in stock. Phillip Goldstein, Andrew Dakos and Steven Samuels’s fund, Bulldog Investors, also dropped its stock, about $0.5 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Graf Industrial Corp. (NYSE:GRAF) but similarly valued. These stocks are Heritage Insurance Holdings Inc (NYSE:HRTG), Hingham Institution for Savings (NASDAQ:HIFS), Tristate Capital Holdings Inc (NASDAQ:TSC), and Value Line, Inc. (NASDAQ:VALU). This group of stocks’ market valuations are similar to GRAF’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HRTG 7 19577 -1
HIFS 3 4293 0
TSC 16 23757 4
VALU 2 2959 0
Average 7 12647 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $115 million in GRAF’s case. Tristate Capital Holdings Inc (NASDAQ:TSC) is the most popular stock in this table. On the other hand Value Line, Inc. (NASDAQ:VALU) is the least popular one with only 2 bullish hedge fund positions. Graf Industrial Corp. (NYSE:GRAF) 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 GRAF as the stock returned 36.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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