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Hedge Funds Can’t Buy Enough Of GDS Holdings Limited (GDS)

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 GDS Holdings Limited (NASDAQ:GDS) and determine whether the smart money was really smart about this stock.

GDS Holdings Limited (NASDAQ:GDS) investors should pay attention to an increase in activity from the world’s largest hedge funds recently. GDS Holdings Limited (NASDAQ:GDS) was in 43 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 41 hedge funds in our database with GDS holdings at the end of March. Our calculations also showed that GDS 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chase Coleman of Tiger Global

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. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we’re going to take a peek at the new hedge fund action surrounding GDS Holdings Limited (NASDAQ:GDS).

Hedge fund activity in GDS Holdings Limited (NASDAQ:GDS)

At the end of June, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GDS over the last 20 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in GDS Holdings Limited (NASDAQ:GDS) was held by 12 West Capital Management, which reported holding $795.7 million worth of stock at the end of September. It was followed by Tiger Global Management LLC with a $456.5 million position. Other investors bullish on the company included D E Shaw, Tekne Capital Management, and Kylin Management. In terms of the portfolio weights assigned to each position 12 West Capital Management allocated the biggest weight to GDS Holdings Limited (NASDAQ:GDS), around 41.12% of its 13F portfolio. Kadensa Capital is also relatively very bullish on the stock, dishing out 29.15 percent of its 13F equity portfolio to GDS.

Now, some big names have jumped into GDS Holdings Limited (NASDAQ:GDS) headfirst. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, created the largest position in GDS Holdings Limited (NASDAQ:GDS). LMR Partners had $17.6 million invested in the company at the end of the quarter. Kevin Mok’s Hidden Lake Asset Management also made a $9.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Robert Boucai’s Newbrook Capital Advisors, Panayotis Takis Sparaggis’s Alkeon Capital Management, and Stewart Strawbridge’s Selkirk Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as GDS Holdings Limited (NASDAQ:GDS) but similarly valued. These stocks are Brookfield Infrastructure Partners L.P. (NYSE:BIP), The J.M. Smucker Company (NYSE:SJM), W.P. Carey Inc. (NYSE:WPC), LINE Corporation (NYSE:LN), Catalent Inc (NYSE:CTLT), NVR, Inc. (NYSE:NVR), and HEICO Corporation (NYSE:HEI). This group of stocks’ market valuations resemble GDS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BIP 12 52792 -2
SJM 38 673873 2
WPC 23 93673 1
LN 8 116785 1
CTLT 35 490420 8
NVR 39 939775 5
HEI 46 667415 7
Average 28.7 433533 3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.7 hedge funds with bullish positions and the average amount invested in these stocks was $434 million. That figure was $2239 million in GDS’s case. HEICO Corporation (NYSE:HEI) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 8 bullish hedge fund positions. GDS Holdings Limited (NASDAQ:GDS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GDS is 83.1. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately GDS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GDS were disappointed as the stock returned 1.6% 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.