How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Globus Medical Inc (NYSE:GMED) and determine whether hedge funds had an edge regarding this stock.
Globus Medical Inc (NYSE:GMED) was in 32 hedge funds’ portfolios at the end of June. The all time high for this statistics is 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. GMED investors should pay attention to an increase in hedge fund interest in recent months. There were 19 hedge funds in our database with GMED holdings at the end of March. Our calculations also showed that GMED 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.
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 peek at the new hedge fund action regarding Globus Medical Inc (NYSE:GMED).
What does smart money think about Globus Medical Inc (NYSE:GMED)?
At Q2’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 68% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in GMED a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in Globus Medical Inc (NYSE:GMED), which was worth $37.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $33.9 million worth of shares. Millennium Management, Arrowstreet Capital, and Paloma Partners 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 Intrepid Capital Management allocated the biggest weight to Globus Medical Inc (NYSE:GMED), around 1.35% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.43 percent of its 13F equity portfolio to GMED.
As aggregate interest increased, key hedge funds were leading the bulls’ herd. Paloma Partners, managed by Donald Sussman, created the biggest position in Globus Medical Inc (NYSE:GMED). Paloma Partners had $6.3 million invested in the company at the end of the quarter. Mark Travis’s Intrepid Capital Management also made a $2.4 million investment in the stock during the quarter. The following funds were also among the new GMED investors: Steve Cohen’s Point72 Asset Management, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Minhua Zhang’s Weld Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Globus Medical Inc (NYSE:GMED). These stocks are Eastgroup Properties Inc (NYSE:EGP), Texas Pacific Land Trust (NYSE:TPL), Pure Storage, Inc. (NYSE:PSTG), The AZEK Company Inc. (NYSE:AZEK), Virtu Financial Inc (NASDAQ:VIRT), CoreSite Realty Corp (NYSE:COR), and 1Life Healthcare, Inc. (NASDAQ:ONEM). This group of stocks’ market valuations are closest to GMED’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.7 hedge funds with bullish positions and the average amount invested in these stocks was $359 million. That figure was $132 million in GMED’s case. Pure Storage, Inc. (NYSE:PSTG) is the most popular stock in this table. On the other hand Eastgroup Properties Inc (NYSE:EGP) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Globus Medical Inc (NYSE:GMED) is more popular among hedge funds. Our overall hedge fund sentiment score for GMED is 90. 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 returned 23.8% in 2020 through September 14th but still managed to beat the market by 17.6 percentage points. Hedge funds were also right about betting on GMED as the stock returned 16.5% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.