Hedge Funds Are Still Plowing Into GenMark Diagnostics, Inc (GNMK)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded GenMark Diagnostics, Inc (NASDAQ:GNMK) and determine whether the smart money was really smart about this stock.

GenMark Diagnostics, Inc (NASDAQ:GNMK) was in 24 hedge funds’ portfolios at the end of June. The all time high for this statistics is 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. GNMK shareholders have witnessed an increase in hedge fund sentiment recently. There were 14 hedge funds in our database with GNMK holdings at the end of March. Our calculations also showed that GNMK isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 58 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.

Samuel Isaly Orbimed Advisors

Samuel Isaly of OrbiMed Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to go over the fresh hedge fund action regarding GenMark Diagnostics, Inc (NASDAQ:GNMK).

What does smart money think about GenMark Diagnostics, Inc (NASDAQ:GNMK)?

Heading into the third quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 71% from the first quarter of 2020. By comparison, 14 hedge funds held shares or bullish call options in GNMK a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Consonance Capital Management was the largest shareholder of GenMark Diagnostics, Inc (NASDAQ:GNMK), with a stake worth $101.4 million reported as of the end of September. Trailing Consonance Capital Management was Redmile Group, which amassed a stake valued at $72.1 million. Renaissance Technologies, Millennium Management, and D E Shaw 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 Consonance Capital Management allocated the biggest weight to GenMark Diagnostics, Inc (NASDAQ:GNMK), around 6.08% of its 13F portfolio. Parkman Healthcare Partners is also relatively very bullish on the stock, earmarking 3.32 percent of its 13F equity portfolio to GNMK.

As industrywide interest jumped, some big names were leading the bulls’ herd. Consonance Capital Management, managed by Mitchell Blutt, created the largest position in GenMark Diagnostics, Inc (NASDAQ:GNMK). Consonance Capital Management had $101.4 million invested in the company at the end of the quarter. Jeremy Green’s Redmile Group also initiated a $72.1 million position during the quarter. The following funds were also among the new GNMK investors: Anand Parekh’s Alyeska Investment Group, Samuel Isaly’s OrbiMed Advisors, and Josh Goldberg’s G2 Investment Partners Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as GenMark Diagnostics, Inc (NASDAQ:GNMK) but similarly valued. These stocks are Teekay LNG Partners L.P. (NYSE:TGP), Scholastic Corp (NASDAQ:SCHL), Century Communities, Inc (NYSE:CCS), Comstock Resources Inc (NYSE:CRK), Avaya Holdings Corp. (NYSE:AVYA), Arbor Realty Trust, Inc. (NYSE:ABR), and Waddell & Reed Financial, Inc. (NYSE:WDR). All of these stocks’ market caps resemble GNMK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TGP 10 35133 0
SCHL 13 69585 2
CCS 21 131046 4
CRK 17 82360 14
AVYA 34 263128 7
ABR 6 32144 -8
WDR 25 118264 3
Average 18 104523 3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $347 million in GNMK’s case. Avaya Holdings Corp. (NYSE:AVYA) is the most popular stock in this table. On the other hand Arbor Realty Trust, Inc. (NYSE:ABR) is the least popular one with only 6 bullish hedge fund positions. GenMark Diagnostics, Inc (NASDAQ:GNMK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GNMK is 72.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately GNMK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GNMK were disappointed as the stock returned -9.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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