At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Generac Holdings Inc. (NYSE:GNRC) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Generac Holdings Inc. (NYSE:GNRC) a healthy stock for your portfolio? The best stock pickers were taking a bullish view. The number of bullish hedge fund positions rose by 7 lately. Generac Holdings Inc. (NYSE:GNRC) was in 36 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that GNRC 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). There were 29 hedge funds in our database with GNRC positions at the end of the first quarter.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Robert Atchinson of Adage Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. 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. With all of this in mind let’s take a glance at the new hedge fund action encompassing Generac Holdings Inc. (NYSE:GNRC).
What does smart money think about Generac Holdings Inc. (NYSE:GNRC)?
At the end of June, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in GNRC a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, Impax Asset Management held the most valuable stake in Generac Holdings Inc. (NYSE:GNRC), which was worth $112 million at the end of the third quarter. On the second spot was Millennium Management which amassed $71.5 million worth of shares. Citadel Investment Group, Ariel Investments, and Adage Capital 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 BeaconLight Capital allocated the biggest weight to Generac Holdings Inc. (NYSE:GNRC), around 5.77% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, setting aside 4.69 percent of its 13F equity portfolio to GNRC.
As aggregate interest increased, key hedge funds were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the biggest position in Generac Holdings Inc. (NYSE:GNRC). Adage Capital Management had $29.6 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $25.2 million investment in the stock during the quarter. The following funds were also among the new GNRC investors: Alexander Mitchell’s Scopus Asset Management, Donald Sussman’s Paloma Partners, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Generac Holdings Inc. (NYSE:GNRC) but similarly valued. We will take a look at Elastic N.V. (NYSE:ESTC), Tenaris S.A. (NYSE:TS), Weibo Corp (NASDAQ:WB), Host Hotels and Resorts Inc (NYSE:HST), A. O. Smith Corporation (NYSE:AOS), Juniper Networks, Inc. (NYSE:JNPR), and ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD). This group of stocks’ market caps are closest to GNRC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ESTC | 43 | 1385856 | 10 |
| TS | 12 | 204534 | -3 |
| WB | 14 | 92970 | 4 |
| HST | 29 | 221044 | 5 |
| AOS | 35 | 410037 | 10 |
| JNPR | 33 | 558592 | -1 |
| ACAD | 44 | 2839807 | 16 |
| Average | 30 | 816120 | 5.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $816 million. That figure was $473 million in GNRC’s case. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 12 bullish hedge fund positions. Generac Holdings Inc. (NYSE:GNRC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GNRC is 77.5. 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. 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 still beat the market by 23.2 percentage points. Hedge funds were also right about betting on GNRC as the stock returned 55.8% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
