Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Hedge fund interest in Group 1 Automotive, Inc. (NYSE:GPI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare GPI to other stocks including HNI Corporation (NYSE:HNI), Cardiovascular Systems Inc (NASDAQ:CSII), and The Children’s Place Inc. (NASDAQ:PLCE) to get a better sense of its popularity.
Video: Click the image to 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 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.
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 check out the key hedge fund action encompassing Group 1 Automotive, Inc. (NYSE:GPI).
How have hedgies been trading Group 1 Automotive, Inc. (NYSE:GPI)?
At Q2’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in GPI a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Eminence Capital, managed by Ricky Sandler, holds the biggest position in Group 1 Automotive, Inc. (NYSE:GPI). Eminence Capital has a $81.5 million position in the stock, comprising 1.1% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, managed by Ken Griffin, which holds a $20.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining peers that are bullish contain Phill Gross and Robert Atchinson’s Adage Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Seeing as Group 1 Automotive, Inc. (NYSE:GPI) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few fund managers who were dropping their positions entirely last quarter. Intriguingly, Alexander Mitchell’s Scopus Asset Management said goodbye to the largest stake of all the hedgies watched by Insider Monkey, valued at about $4.5 million in stock, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital was right behind this move, as the fund dropped about $0.1 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Group 1 Automotive, Inc. (NYSE:GPI). We will take a look at HNI Corporation (NYSE:HNI), Cardiovascular Systems Inc (NASDAQ:CSII), The Children’s Place Inc. (NASDAQ:PLCE), and Tootsie Roll Industries, Inc. (NYSE:TR). This group of stocks’ market values match GPI’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 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $153 million in GPI’s case. The Children’s Place Inc. (NASDAQ:PLCE) is the most popular stock in this table. On the other hand Tootsie Roll Industries, Inc. (NYSE:TR) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Group 1 Automotive, Inc. (NYSE:GPI) is even less popular than TR. Hedge funds clearly dropped the ball on GPI as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on GPI as the stock returned 13.1% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.