It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Gartner Inc (NYSE:IT).
Gartner Inc (NYSE:IT) was in 21 hedge funds’ portfolios at the end of the fourth quarter of 2018. IT has experienced an increase in activity from the world’s largest hedge funds lately. There were 13 hedge funds in our database with IT holdings at the end of the previous quarter. Our calculations also showed that IT isn’t among the 30 most popular stocks among hedge funds.
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 32 percentage points since May 2014 through March 12, 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 take a look at the recent hedge fund action regarding Gartner Inc (NYSE:IT).
What does the smart money think about Gartner Inc (NYSE:IT)?
At Q4’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 62% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IT over the last 14 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in Gartner Inc (NYSE:IT) was held by Select Equity Group, which reported holding $561 million worth of stock at the end of September. It was followed by Bares Capital Management with a $296.7 million position. Other investors bullish on the company included Melvin Capital Management, Nitorum Capital, and Balyasny Asset Management.
Consequently, key hedge funds have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, created the biggest position in Gartner Inc (NYSE:IT). Balyasny Asset Management had $17.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $8.6 million investment in the stock during the quarter. The other funds with new positions in the stock are D. E. Shaw’s D E Shaw, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Gartner Inc (NYSE:IT) but similarly valued. These stocks are C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), Elanco Animal Health Incorporated (NYSE:ELAN), NRG Energy Inc (NYSE:NRG), and Advance Auto Parts, Inc. (NYSE:AAP). This group of stocks’ market values match IT’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 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $1116 million. That figure was $1060 million in IT’s case. Advance Auto Parts, Inc. (NYSE:AAP) is the most popular stock in this table. On the other hand Elanco Animal Health Incorporated (NYSE:ELAN) is the least popular one with only 18 bullish hedge fund positions. Gartner Inc (NYSE:IT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on IT, though not to the same extent, as the stock returned 13.4% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.