Is Great Elm Capital Group, Inc. (GEC) Going to Burn These Hedge Funds?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Great Elm Capital Group, Inc. (NASDAQ:GEC).

Great Elm Capital Group, Inc. (NASDAQ:GEC) has seen an increase in enthusiasm from smart money in recent months. 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 below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mark Kingdon - Kingdon Capital

Mark Kingdon of Kingdon Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the latest hedge fund action encompassing Great Elm Capital Group, Inc. (NASDAQ:GEC).

What does smart money think about 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 14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GEC over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Becker Drapkin Management, managed by Matthew Drapkin and Steven R. Becker, holds the most valuable position in Great Elm Capital Group, Inc. (NASDAQ:GEC). Becker Drapkin Management has a $8.8 million position in the stock, comprising 11.7% of its 13F portfolio. The second largest stake is held by Jeffrey Bronchick of Cove Street Capital, with a $6.4 million position; 0.9% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism contain Mark Kingdon’s Kingdon Capital, Paul J. Isaac’s Arbiter Partners Capital Management and Renaissance Technologies. 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 11.68% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, setting aside 0.89 percent of its 13F equity portfolio to GEC.

Consequently, key hedge funds have been driving this bullishness. Millennium Management, managed by Israel Englander, established the biggest position in Great Elm Capital Group, Inc. (NASDAQ:GEC). Millennium Management had $0.1 million invested in the company at the end of the quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Great Elm Capital Group, Inc. (NASDAQ:GEC) but similarly valued. We will take a look at Cyren Ltd (NASDAQ:CYRN), Navios Maritime Acquisition Corporation (NYSE:NNA), Alaska Communications Systems Group Inc (NASDAQ:ALSK), and Kingstone Companies Inc (NASDAQ:KINS). 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
CYRN 2 1888 0
NNA 2 2384 0
ALSK 5 5624 0
KINS 6 8722 2
Average 3.75 4655 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $31 million in GEC’s case. Kingstone Companies Inc (NASDAQ:KINS) is the most popular stock in this table. On the other hand Cyren Ltd (NASDAQ:CYRN) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Great Elm Capital Group, Inc. (NASDAQ:GEC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GEC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GEC were disappointed as the stock returned -12.3% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

Disclosure: None. This article was originally published at Insider Monkey.