In this article we are going to use hedge fund sentiment as a tool and determine whether Great Elm Capital Group, Inc. (NASDAQ:GEC) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is GEC a good stock to buy now? Hedge fund interest in Great Elm Capital Group, Inc. (NASDAQ:GEC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that GEC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare GEC to other stocks including Hennessy Advisors, Inc. (NASDAQ:HNNA), TDH Holdings, Inc. (NASDAQ:PETZ), and Titan Medical Inc. (NASDAQ:TMDI) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s analyze the latest hedge fund action encompassing Great Elm Capital Group, Inc. (NASDAQ:GEC).
How are hedge funds trading Great Elm Capital Group, Inc. (NASDAQ:GEC)?
At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GEC over the last 21 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Becker Drapkin Management held the most valuable stake in Great Elm Capital Group, Inc. (NASDAQ:GEC), which was worth $5.7 million at the end of the third quarter. On the second spot was Cove Street Capital which amassed $4.1 million worth of shares. Kingdon Capital, Arbiter Partners Capital Management, and Renaissance Technologies 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 Becker Drapkin Management allocated the biggest weight to Great Elm Capital Group, Inc. (NASDAQ:GEC), around 2.97% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, earmarking 0.77 percent of its 13F equity portfolio to GEC.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s now take a look at hedge fund activity in other stocks similar to Great Elm Capital Group, Inc. (NASDAQ:GEC). These stocks are Hennessy Advisors, Inc. (NASDAQ:HNNA), TDH Holdings, Inc. (NASDAQ:PETZ), Titan Medical Inc. (NASDAQ:TMDI), Celcuity Inc. (NASDAQ:CELC), Armata Pharmaceuticals, Inc. (NYSE:ARMP), RumbleOn, Inc. (NASDAQ:RMBL), and Synacor Inc (NASDAQ:SYNC). All of these stocks’ market caps are closest to GEC’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 2.3 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $20 million in GEC’s case. Synacor Inc (NASDAQ:SYNC) is the most popular stock in this table. On the other hand TDH Holdings, Inc. (NASDAQ:PETZ) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Great Elm Capital Group, Inc. (NASDAQ:GEC) is more popular among hedge funds. Our overall hedge fund sentiment score for GEC is 81.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 31.6% in 2020 through December 2nd but still managed to beat the market by 16 percentage points. Hedge funds were also right about betting on GEC as the stock returned 12.7% since the end of September (through 12/2) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.