Hedge Funds Have Never Been This Bullish On Goosehead Insurance, Inc. (GSHD)

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Goosehead Insurance, Inc. (NASDAQ:GSHD).

Goosehead Insurance, Inc. (NASDAQ:GSHD) shareholders have witnessed an increase in hedge fund interest of late. Our calculations also showed that GSHD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Driehaus of Driehaus Capital

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 view the key hedge fund action surrounding Goosehead Insurance, Inc. (NASDAQ:GSHD).

How are hedge funds trading Goosehead Insurance, Inc. (NASDAQ:GSHD)?

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 14% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in GSHD a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Driehaus Capital held the most valuable stake in Goosehead Insurance, Inc. (NASDAQ:GSHD), which was worth $14.9 million at the end of the third quarter. On the second spot was Wildcat Capital Management which amassed $7.2 million worth of shares. Akre Capital Management, D E Shaw, and Millennium Management 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 Wildcat Capital Management allocated the biggest weight to Goosehead Insurance, Inc. (NASDAQ:GSHD), around 3.06% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, earmarking 0.49 percent of its 13F equity portfolio to GSHD.

Consequently, key money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, assembled the biggest position in Goosehead Insurance, Inc. (NASDAQ:GSHD). Millennium Management had $1.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.9 million position during the quarter. The only other fund with a brand new GSHD position is Josh Goldberg’s G2 Investment Partners Management.

Let’s now take a look at hedge fund activity in other stocks similar to Goosehead Insurance, Inc. (NASDAQ:GSHD). These stocks are Avanos Medical, Inc. (NYSE:AVNS), Yext, Inc. (NYSE:YEXT), Altra Industrial Motion Corp. (NASDAQ:AIMC), and SSR Mining Inc. (NASDAQ:SSRM). This group of stocks’ market values are similar to GSHD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVNS 12 69048 1
YEXT 13 98841 -8
AIMC 14 218302 0
SSRM 15 166357 -1
Average 13.5 138137 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $36 million in GSHD’s case. SSR Mining Inc. (NASDAQ:SSRM) is the most popular stock in this table. On the other hand Avanos Medical, Inc. (NYSE:AVNS) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Goosehead Insurance, Inc. (NASDAQ:GSHD) is even less popular than AVNS. Hedge funds dodged a bullet by taking a bearish stance towards GSHD. 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 GSHD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); GSHD investors were disappointed as the stock returned -17.9% 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.