Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Geopark Ltd (NYSE:GPRK) investors should be aware of a decrease in hedge fund sentiment in recent months. GPRK was in 8 hedge funds’ portfolios at the end of the third quarter of 2019. There were 10 hedge funds in our database with GPRK holdings at the end of the previous quarter. Our calculations also showed that GPRK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
David E. Shaw of D.E. Shaw
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. Let’s check out the key hedge fund action encompassing Geopark Ltd (NYSE:GPRK).
What have hedge funds been doing with Geopark Ltd (NYSE:GPRK)?
Heading into the fourth quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in GPRK over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the most valuable position in Geopark Ltd (NYSE:GPRK). Renaissance Technologies has a $81.9 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is D E Shaw, managed by David E. Shaw, which holds a $5.4 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions comprise Chuck Royce’s Royce & Associates, Israel Englander’s Millennium Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Navellier & Associates allocated the biggest weight to Geopark Ltd (NYSE:GPRK), around 0.11% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.07 percent of its 13F equity portfolio to GPRK.
Judging by the fact that Geopark Ltd (NYSE:GPRK) has faced falling interest from the aggregate hedge fund industry, logic holds that there were a few fund managers who sold off their positions entirely by the end of the third quarter. It’s worth mentioning that Richard Driehaus’s Driehaus Capital sold off the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at about $1 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund sold off about $0.4 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Geopark Ltd (NYSE:GPRK). These stocks are Apollo Investment Corp. (NASDAQ:AINV), RPT Realty (NYSE:RPT), Virtusa Corporation (NASDAQ:VRTU), and Benchmark Electronics, Inc. (NYSE:BHE). This group of stocks’ market values are similar to GPRK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AINV | 10 | 28823 | 4 |
| RPT | 11 | 37172 | 2 |
| VRTU | 13 | 41660 | 0 |
| BHE | 13 | 45160 | 1 |
| Average | 11.75 | 38204 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $96 million in GPRK’s case. Virtusa Corporation (NASDAQ:VRTU) is the most popular stock in this table. On the other hand Apollo Investment Corp. (NASDAQ:AINV) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Geopark Ltd (NYSE:GPRK) is even less popular than AINV. Hedge funds dodged a bullet by taking a bearish stance towards GPRK. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GPRK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); GPRK investors were disappointed as the stock returned -1.7% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
