Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The time period between June 25 and the end of October was one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually, their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Gafisa SA (ADR) (NYSE:GFA).
Gafisa SA (ADR) (NYSE:GFA) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Sizmek Inc (NASDAQ:SZMK), Autobytel Inc. (NASDAQ:ABTL), and Mattson Technology, Inc. (NASDAQ:MTSN) to gather more data points.
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To the average investor, there are a large number of methods market participants can use to evaluate publicly traded companies. A couple of the best methods are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the best money managers can outperform their index-focused peers by a very impressive amount (see the details here).
Keeping this in mind, we’re going to go over the key action surrounding Gafisa SA (ADR) (NYSE:GFA).
How have hedgies been trading Gafisa SA (ADR) (NYSE:GFA)?
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the second quarter. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Jim Simons’s Renaissance Technologies has the biggest position in Gafisa SA (ADR) (NYSE:GFA), worth close to $0.6 million, accounting for less than 0.1% of its total 13F portfolio. On Renaissance Technologies’s heels is Orbis Investment Management, managed by William B. Gray, which holds a $0.3 million position; less than 0.1% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, D. E. Shaw’s D E Shaw and Chao Ku’s Nine Chapters Capital Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case, because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Gafisa SA (ADR) (NYSE:GFA) but similarly valued. These stocks are Sizmek Inc (NASDAQ:SZMK), Autobytel Inc. (NASDAQ:ABTL), Mattson Technology, Inc. (NASDAQ:MTSN), and FIRST FINANCIAL NORTHWEST, INC. (NASDAQ:FFNW). This group of stocks’ market caps are similar to GFA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SZMK | 8 | 21501 | -2 |
| ABTL | 14 | 24372 | 2 |
| MTSN | 8 | 11310 | -9 |
| FFNW | 6 | 11117 | 1 |
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was a meager $1 million in GFA’s case. Autobytel Inc. (NASDAQ:ABTL) is the most popular stock in this table. On the other hand FIRST FINANCIAL NORTHWEST, INC. (NASDAQ:FFNW) is the least popular one with only 6 bullish hedge fund positions on par with Gafisa SA (ADR) (NYSE:GFA). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
