Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to GTY Technology Holdings, Inc. (NASDAQ:GTYH) changed recently.
Is GTY Technology Holdings, Inc. (NASDAQ:GTYH) a healthy stock for your portfolio? Investors who are in the know are becoming less confident. The number of bullish hedge fund positions dropped by 2 recently. Our calculations also showed that GTYH isn’t among the 30 most popular stocks among hedge funds. GTYH was in 19 hedge funds’ portfolios at the end of September. There were 21 hedge funds in our database with GTYH holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s go over the recent hedge fund action surrounding GTY Technology Holdings, Inc. (NASDAQ:GTYH).
How have hedgies been trading GTY Technology Holdings, Inc. (NASDAQ:GTYH)?
At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GTYH over the last 13 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in GTY Technology Holdings, Inc. (NASDAQ:GTYH) was held by Baupost Group, which reported holding $47.6 million worth of stock at the end of September. It was followed by Glazer Capital with a $45.3 million position. Other investors bullish on the company included Elliott Management, Alyeska Investment Group, and Hudson Bay Capital Management.
Seeing as GTY Technology Holdings, Inc. (NASDAQ:GTYH) has faced declining sentiment from hedge fund managers, it’s easy to see that there exists a select few hedgies who sold off their entire stakes last quarter. It’s worth mentioning that Mark Kingdon’s Kingdon Capital said goodbye to the largest stake of the 700 funds followed by Insider Monkey, totaling about $12.7 million in stock, and Jamie Mendola’s Pacific Grove Capital was right behind this move, as the fund dumped about $6.5 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to GTY Technology Holdings, Inc. (NASDAQ:GTYH). These stocks are K12 Inc. (NYSE:LRN), Oaktree Specialty Lending Corporation (NASDAQ:OCSL), Fortuna Silver Mines Inc. (NYSE:FSM), and Civeo Corporation (NYSE:CVEO). This group of stocks’ market caps are similar to GTYH’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 14 hedge funds with bullish positions and the average amount invested in these stocks was $117 million. That figure was $385 million in GTYH’s case. K12 Inc. (NYSE:LRN) is the most popular stock in this table. On the other hand Fortuna Silver Mines Inc. (NYSE:FSM) is the least popular one with only 11 bullish hedge fund positions. GTY Technology Holdings, Inc. (NASDAQ:GTYH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard LRN might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.