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.
Is Global Indemnity Limited (NASDAQ:GBLI) going to take off soon? The smart money is in a bearish mood. The number of bullish hedge fund bets dropped by 2 in recent months. Our calculations also showed that gbli isn’t among the 30 most popular stocks among hedge funds. GBLI was in 5 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 7 hedge funds in our database with GBLI holdings at the end of the previous quarter.
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 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.
Let’s go over the new hedge fund action encompassing Global Indemnity Limited (NASDAQ:GBLI).
How are hedge funds trading Global Indemnity Limited (NASDAQ:GBLI)?
Heading into the first quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GBLI over the last 14 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Springhouse Capital Management, managed by Brian Gaines, holds the number one position in Global Indemnity Limited (NASDAQ:GBLI). Springhouse Capital Management has a $27 million position in the stock, comprising 13% of its 13F portfolio. Coming in second is Capital Returns Management, led by Ron Bobman, holding a $9.7 million position; the fund has 5.4% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Jim Simons’s Renaissance Technologies, Jeffrey Bronchick’s Cove Street Capital and Ric Dillon’s Diamond Hill Capital.
Seeing as Global Indemnity Limited (NASDAQ:GBLI) has witnessed falling interest from the smart money, we can see that there was a specific group of hedge funds that elected to cut their positions entirely heading into Q3. Intriguingly, Israel Englander’s Millennium Management sold off the largest stake of the 700 funds tracked by Insider Monkey, valued at close to $0.5 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $0.3 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 2 funds heading into Q3.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Global Indemnity Limited (NASDAQ:GBLI) but similarly valued. These stocks are Ribbon Communications Inc. (NASDAQ:RBBN), Universal Logistics Holdings, Inc. (NASDAQ:ULH), Casa Therapeutics Inc (NASDAQ:CARA), and First Community Bankshares Inc (NASDAQ:FCBC). All of these stocks’ market caps are closest to GBLI’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 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $44 million in GBLI’s case. Ribbon Communications Inc. (NASDAQ:RBBN) is the most popular stock in this table. On the other hand First Community Bankshares Inc (NASDAQ:FCBC) is the least popular one with only 3 bullish hedge fund positions. Global Indemnity Limited (NASDAQ:GBLI) 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 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately GBLI wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); GBLI investors were disappointed as the stock returned -18.1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.