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Hedge Funds Warming Up To Gladstone Commercial Corporation (GOOD)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Gladstone Commercial Corporation (NASDAQ:GOOD).

Gladstone Commercial Corporation (NASDAQ:GOOD) shareholders have witnessed an increase in enthusiasm from smart money recently. Our calculations also showed that GOOD 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.

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 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. 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.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. With all of this in mind let’s take a glance at the key hedge fund action regarding Gladstone Commercial Corporation (NASDAQ:GOOD).

How have hedgies been trading Gladstone Commercial Corporation (NASDAQ:GOOD)?

Heading into the second quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the fourth quarter of 2019. By comparison, 6 hedge funds held shares or bullish call options in GOOD 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.

Is GOOD A Good Stock To Buy?

The largest stake in Gladstone Commercial Corporation (NASDAQ:GOOD) was held by Renaissance Technologies, which reported holding $37.1 million worth of stock at the end of September. It was followed by Millennium Management with a $7.5 million position. Other investors bullish on the company included Two Sigma Advisors, Marshall Wace LLP, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Gladstone Commercial Corporation (NASDAQ:GOOD), around 0.04% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to GOOD.

Now, key hedge funds have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most outsized position in Gladstone Commercial Corporation (NASDAQ:GOOD). Marshall Wace LLP had $1.8 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $0.3 million investment in the stock during the quarter. The only other fund with a brand new GOOD position is Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks similar to Gladstone Commercial Corporation (NASDAQ:GOOD). These stocks are Ardelyx Inc (NASDAQ:ARDX), Lantheus Holdings Inc (NASDAQ:LNTH), Loral Space & Communications Ltd. (NASDAQ:LORL), and Preferred Bank (NASDAQ:PFBC). This group of stocks’ market caps are closest to GOOD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ARDX 20 202923 -5
LNTH 20 77954 4
LORL 19 223665 1
PFBC 7 24634 -4
Average 16.5 132294 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $53 million in GOOD’s case. Ardelyx Inc (NASDAQ:ARDX) is the most popular stock in this table. On the other hand Preferred Bank (NASDAQ:PFBC) is the least popular one with only 7 bullish hedge fund positions. Gladstone Commercial Corporation (NASDAQ:GOOD) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on GOOD as the stock returned 35.2% during the second quarter and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.