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Here is What Hedge Funds Think About W.R. Grace & Co. (GRA)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like W.R. Grace & Co. (NYSE:GRA).

Is W.R. Grace & Co. (NYSE:GRA) the right pick for your portfolio? The best stock pickers are getting more bullish. The number of long hedge fund positions rose by 2 recently. Our calculations also showed that GRA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most investors, hedge funds are assumed to be unimportant, outdated investment vehicles of the past. While there are greater than 8000 funds trading at the moment, Our experts hone in on the aristocrats of this club, around 750 funds. It is estimated that this group of investors handle most of the smart money’s total capital, and by keeping an eye on their unrivaled investments, Insider Monkey has discovered a few investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Jeffrey Gates of Gates Capital Management

Jeffrey Gates of Gates Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the key hedge fund action surrounding W.R. Grace & Co. (NYSE:GRA).

How have hedgies been trading W.R. Grace & Co. (NYSE:GRA)?

At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GRA over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

GRA_nov2019

Among these funds, 40 North Management held the most valuable stake in W.R. Grace & Co. (NYSE:GRA), which was worth $658.6 million at the end of the third quarter. On the second spot was Soroban Capital Partners which amassed $186.3 million worth of shares. Echo Street Capital Management, Iridian Asset Management, and Gates Capital Management 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 40 North Management allocated the biggest weight to W.R. Grace & Co. (NYSE:GRA), around 58.84% of its portfolio. Highline Capital Management is also relatively very bullish on the stock, setting aside 6 percent of its 13F equity portfolio to GRA.

With a general bullishness amongst the heavyweights, some big names have jumped into W.R. Grace & Co. (NYSE:GRA) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in W.R. Grace & Co. (NYSE:GRA). Arrowstreet Capital had $14.8 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also initiated a $2.3 million position during the quarter. The other funds with brand new GRA positions are Daniel Beltzman and Gergory Smith’s Birch Run Capital, Benjamin A. Smith’s Laurion Capital Management, and John A. Levin’s Levin Capital Strategies.

Let’s now review hedge fund activity in other stocks similar to W.R. Grace & Co. (NYSE:GRA). These stocks are MGIC Investment Corporation (NYSE:MTG), Blackbaud, Inc. (NASDAQ:BLKB), J2 Global Inc (NASDAQ:JCOM), and Spire Inc. (NYSE:SR). This group of stocks’ market valuations are closest to GRA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTG 39 566495 4
BLKB 12 72983 2
JCOM 18 280780 -6
SR 13 80974 1
Average 20.5 250308 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $1654 million in GRA’s case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand Blackbaud, Inc. (NASDAQ:BLKB) is the least popular one with only 12 bullish hedge fund positions. W.R. Grace & Co. (NYSE:GRA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GRA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GRA were disappointed as the stock returned 0.5% during the fourth quarter (through the end of November) 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 so far this year.

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

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