At Insider Monkey we follow nearly 750 of the best-performing investors and even though many of them lost money in the last couple of months of 2018 (some actually delivered very strong returns), the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.
Gran Tierra Energy Inc. (NYSE:GTE) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds’ portfolios at the end of March. At the end of this article we will also compare GTE to other stocks including ACCO Brands Corporation (NYSE:ACCO), Extreme Networks, Inc (NASDAQ:EXTR), and Continental Building Products Inc (NYSE:CBPX) to get a better sense of its popularity.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Let’s go over the recent hedge fund action surrounding Gran Tierra Energy Inc. (NYSE:GTE).
How have hedgies been trading Gran Tierra Energy Inc. (NYSE:GTE)?
At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GTE over the last 15 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in Gran Tierra Energy Inc. (NYSE:GTE) was held by GMT Capital, which reported holding $167.5 million worth of stock at the end of March. It was followed by Luminus Management with a $53 million position. Other investors bullish on the company included Moerus Capital Management, Renaissance Technologies, and Arrowstreet Capital.
Since Gran Tierra Energy Inc. (NYSE:GTE) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of funds that slashed their positions entirely by the end of the third quarter. Interestingly, David Halpert’s Prince Street Capital Management sold off the largest stake of the 700 funds watched by Insider Monkey, comprising close to $6.6 million in stock. Richard Driehaus’s fund, Driehaus Capital, also said goodbye to its stock, about $0.6 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Gran Tierra Energy Inc. (NYSE:GTE). These stocks are ACCO Brands Corporation (NYSE:ACCO), Extreme Networks, Inc (NASDAQ:EXTR), Continental Building Products Inc (NYSE:CBPX), and Mr. Cooper Group Inc. (NASDAQ:COOP). This group of stocks’ market valuations are closest to GTE’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 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $269 million in GTE’s case. Mr. Cooper Group Inc. (NASDAQ:COOP) is the most popular stock in this table. On the other hand ACCO Brands Corporation (NYSE:ACCO) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Gran Tierra Energy Inc. (NYSE:GTE) is even less popular than ACCO. Hedge funds dodged a bullet by taking a bearish stance towards GTE. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately GTE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); GTE investors were disappointed as the stock returned -25.1% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.