How Do Hedge Funds Feel About Gerdau SA (GGB)?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The time period between June 25 and the end of October was one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Gerdau SA (NYSE:GGB).

Is Gerdau SA worth your attention right now? Money managers are getting less bullish. The number of long hedge fund positions has inched down by two lately. GGB was in 10 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with GGB positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Genworth Financial Inc (NYSE:GNW), Essent Group Ltd (NYSE:ESNT), and BancorpSouth, Inc. (NYSE:BXS) to gather more data points.

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In today’s marketplace there is a multitude of gauges that investors use to assess stocks. A couple of the most underrated gauges are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the best fund managers can trounce the S&P 500 by a superb margin (see the details here).

Keeping this in mind, we’re going to check out the key action encompassing Gerdau SA (ADR) (NYSE:GGB).

Hedge fund activity in Gerdau SA (ADR) (NYSE:GGB)

At the end of September, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 17% from the second quarter. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Clint Carlson’s Carlson Capital has the biggest position in Gerdau SA (ADR) (NYSE:GGB), worth close to $32.7 million, accounting for 0.4% of its total 13F portfolio. On Carlson Capital’s heels is Phill Gross and Robert Atchinson of Adage Capital Management, with a $7.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions consist of Jim Simons’s Renaissance Technologies, Jacob Gottlieb’s Visium Asset Management and D. E. Shaw.

Since Gerdau SA (ADR) (NYSE:GGB) has experienced a declining sentiment from the smart money, logic holds that there lies a certain “tier” of hedgies that slashed their entire stakes by the end of the third quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest stake of all the hedgies monitored by Insider Monkey, comprising about $4.2 million in stock, and David Costen Haley of HBK Investments was right behind this move, as the fund said goodbye to about $400,000 worth of shares. These bearish behaviors are intriguing, as the aggregate hedge fund interest fell by two funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Gerdau SA (ADR) (NYSE:GGB). These stocks are Genworth Financial Inc (NYSE:GNW), Essent Group Ltd (NYSE:ESNT), BancorpSouth, Inc. (NYSE:BXS), and Valley National Bancorp (NYSE:VLY). This group of stocks’ market caps are similar to GGB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GNW 28 232377 -9
ESNT 21 295088 2
BXS 10 168325 1
VLY 12 48533 -3

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. In GGB’s case, hedge funds held in aggregate $51 million worth of shares. Genworth Financial Inc (NYSE:GNW) is the most popular stock in this table, while BancorpSouth, Inc. (NYSE:BXS) is the least popular one. Gerdau SA (ADR) (NYSE:GGB) is even less popular than BXS, which might suggest that the stock is not a good investment at the moment. Considering that hedge funds aren’t fond of Gerdau compared to the other four stocks, it may be a good idea to analyze it in detail and understand why the smart money isn’t very bullish.