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 Glu Mobile Inc. (NASDAQ:GLUU) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Glu Mobile Inc. (NASDAQ:GLUU) has experienced an increase in activity from the world’s largest hedge funds lately. Glu Mobile Inc. (NASDAQ:GLUU) was in 35 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 18 hedge funds in our database with GLUU positions at the end of the first quarter. Our calculations also showed that GLUU 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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 look at the new hedge fund action regarding Glu Mobile Inc. (NASDAQ:GLUU).
How have hedgies been trading Glu Mobile Inc. (NASDAQ:GLUU)?
At the end of the second quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 94% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in GLUU a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Shelter Haven Capital Management held the most valuable stake in Glu Mobile Inc. (NASDAQ:GLUU), which was worth $30.6 million at the end of the third quarter. On the second spot was Greenhouse Funds which amassed $27 million worth of shares. Arrowstreet Capital, Scopus Asset Management, and Renaissance Technologies 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 Shelter Haven Capital Management allocated the biggest weight to Glu Mobile Inc. (NASDAQ:GLUU), around 11.7% of its 13F portfolio. Greenhouse Funds is also relatively very bullish on the stock, designating 4.04 percent of its 13F equity portfolio to GLUU.
As industrywide interest jumped, some big names were leading the bulls’ herd. Shelter Haven Capital Management, managed by Jerry Kochanski, initiated the biggest position in Glu Mobile Inc. (NASDAQ:GLUU). Shelter Haven Capital Management had $30.6 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $20.9 million investment in the stock during the quarter. The other funds with brand new GLUU positions are Anand Parekh’s Alyeska Investment Group, Israel Englander’s Millennium Management, and Richard Driehaus’s Driehaus Capital.
Let’s check out hedge fund activity in other stocks similar to Glu Mobile Inc. (NASDAQ:GLUU). These stocks are O-I Glass, Inc. (NYSE:OI), Sapiens International Corporation N.V. (NASDAQ:SPNS), Cytokinetics, Inc. (NASDAQ:CYTK), Avanos Medical (NYSE:AVNS), Aurora Cannabis Inc. (NASDAQ:ACB), Silk Road Medical, Inc. (NASDAQ:SILK), and Renasant Corporation (NASDAQ:RNST). This group of stocks’ market values are closest to GLUU’s market value.
|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 16 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $236 million in GLUU’s case. Cytokinetics, Inc. (NASDAQ:CYTK) is the most popular stock in this table. On the other hand Sapiens International Corporation N.V. (NASDAQ:SPNS) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Glu Mobile Inc. (NASDAQ:GLUU) is more popular among hedge funds. Our overall hedge fund sentiment score for GLUU 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 gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately GLUU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GLUU were disappointed as the stock returned -14.3% since the end of the second quarter 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.