Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Gold Resource Corporation (NYSEMKT:GORO).
Gold Resource Corporation (NYSEMKT:GORO) investors should pay attention to a decrease in hedge fund sentiment of late. GORO was in 6 hedge funds’ portfolios at the end of September. There were 7 hedge funds in our database with GORO positions at the end of June. 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 Neuroderm Ltd (NASDAQ:NDRM), Resolute Energy Corp (NYSE:REN), and CU Bancorp (NASDAQ:CUNB) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
What does the smart money think about Gold Resource Corporation (NYSEMKT:GORO)?
Heading into the fourth quarter of 2016, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a 14% drop from the previous quarter. Hedge fund sentiment towards the stock has remained largely flat for several quarters, ranging between 6 and 7 funds owning the stock. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, one of the biggest hedge funds in the world, has the largest position in Gold Resource Corporation (NYSEMKT:GORO), worth close to $13.4 million. On Renaissance Technologies’ heels is AQR Capital Management, led by Cliff Asness, which holds a $2 million position. Some other peers with similar optimism encompass Richard Driehaus’ Driehaus Capital, Eric Sprott’s Sprott Asset Management, and Matthew Hulsizer’s PEAK6 Capital Management. We should note that Sprott Asset Management is among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.
Because Gold Resource Corporation (NYSEMKT:GORO) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of hedge funds that elected to cut their positions entirely by the end of the third quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group dumped the biggest stake of all the hedgies watched by Insider Monkey, valued at an estimated $0.7 million in stock. David E. Shaw’s fund, D E Shaw, also said goodbye to its stock, about $0.5 million worth.
Let’s now review hedge fund activity in other stocks similar to Gold Resource Corporation (NYSEMKT:GORO). We will take a look at Neuroderm Ltd (NASDAQ:NDRM), Resolute Energy Corp (NYSE:REN), CU Bancorp (NASDAQ:CUNB), and Green Bancorp Inc (NASDAQ:GNBC). This group of stocks’ market caps are closest to GORO’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $17 million in GORO’s case. Neuroderm Ltd (NASDAQ:NDRM) is the most popular stock in this table. On the other hand CU Bancorp (NASDAQ:CUNB) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Gold Resource Corporation (NYSEMKT:GORO) is even less popular than CUNB. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.