Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Green Plains Inc. (NASDAQ:GPRE) investors should pay attention to a decrease in support from the world’s most elite money managers lately. Our calculations also showed that GPRE isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the fresh hedge fund action surrounding Green Plains Inc. (NASDAQ:GPRE).
How have hedgies been trading Green Plains Inc. (NASDAQ:GPRE)?
At the end of the second quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GPRE over the last 16 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Mangrove Partners was the largest shareholder of Green Plains Inc. (NASDAQ:GPRE), with a stake worth $43.1 million reported as of the end of March. Trailing Mangrove Partners was Rubric Capital Management, which amassed a stake valued at $19.9 million. Renaissance Technologies, Carlson Capital, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Because Green Plains Inc. (NASDAQ:GPRE) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of fund managers who were dropping their full holdings in the second quarter. It’s worth mentioning that Glenn Russell Dubin’s Highbridge Capital Management cut the largest position of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $28.4 million in stock. D. E. Shaw’s fund, D E Shaw, also dumped its stock, about $14.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds in the second quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Green Plains Inc. (NASDAQ:GPRE) but similarly valued. We will take a look at Haynes International, Inc. (NASDAQ:HAYN), Kimball Electronics Inc (NASDAQ:KE), BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX), and Avid Technology, Inc. (NASDAQ:AVID). All of these stocks’ market caps resemble GPRE’s market cap.
|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 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $108 million in GPRE’s case. BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) is the most popular stock in this table. On the other hand Kimball Electronics Inc (NASDAQ:KE) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Green Plains Inc. (NASDAQ:GPRE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately GPRE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GPRE were disappointed as the stock returned -1.7% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.