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 GigCapital2, Inc. (NYSE:GIX) and determine whether hedge funds skillfully traded this stock.
GigCapital2, Inc. (NYSE:GIX) has seen an increase in hedge fund sentiment recently. Our calculations also showed that GIX 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.
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 58 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.
Donald Sussman of Paloma Partners
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. Now let’s view the key hedge fund action encompassing GigCapital2, Inc. (NYSE:GIX).
What have hedge funds been doing with GigCapital2, Inc. (NYSE:GIX)?
Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GIX over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Fir Tree was the largest shareholder of GigCapital2, Inc. (NYSE:GIX), with a stake worth $10.7 million reported as of the end of September. Trailing Fir Tree was Glazer Capital, which amassed a stake valued at $7.9 million. Hudson Bay Capital Management, Omni Partners, and Magnetar Capital 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 Fir Tree allocated the biggest weight to GigCapital2, Inc. (NYSE:GIX), around 0.94% of its 13F portfolio. Bulldog Investors is also relatively very bullish on the stock, setting aside 0.75 percent of its 13F equity portfolio to GIX.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Fir Tree, managed by Jeffrey Tannenbaum, established the largest position in GigCapital2, Inc. (NYSE:GIX). Fir Tree had $10.7 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also initiated a $5.6 million position during the quarter. The following funds were also among the new GIX investors: Steven Clark’s Omni Partners, Donald Sussman’s Paloma Partners, and Sander Gerber’s Hudson Bay Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to GigCapital2, Inc. (NYSE:GIX). These stocks are Daktronics, Inc. (NASDAQ:DAKT), Spark Energy, Inc. (NASDAQ:SPKE), Siebert Financial Corp. (NASDAQ:SIEB), and Home Bancorp, Inc. (NASDAQ:HBCP). All of these stocks’ market caps are similar to GIX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DAKT | 16 | 13300 | 3 |
| SPKE | 10 | 9894 | -1 |
| SIEB | 1 | 82 | 0 |
| HBCP | 4 | 6073 | -4 |
| Average | 7.75 | 7337 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $42 million in GIX’s case. Daktronics, Inc. (NASDAQ:DAKT) is the most popular stock in this table. On the other hand Siebert Financial Corp. (NASDAQ:SIEB) is the least popular one with only 1 bullish hedge fund positions. GigCapital2, Inc. (NYSE:GIX) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately GIX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GIX were disappointed as the stock returned 1.9% 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.
