Sinking Smart Money Sentiment for Ferroglobe PLC (GSM) Becoming A Trend

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Ferroglobe PLC (NASDAQ:GSM) was in 17 hedge funds’ portfolios at the end of the third quarter of 2016. GSM has experienced a decrease in support from the world’s most successful money managers lately. There were 21 hedge funds in our database with GSM 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 NIC Inc. (NASDAQ:EGOV), Noble Corporation (NYSE:NE), and Enerplus Corp (USA) (NYSE:ERF) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

How are hedge funds trading Ferroglobe PLC (NASDAQ:GSM)?

At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a 19% drop from the second quarter of 2016, and the second straight quarter with a drop in bullish hedge fund positions, following 2 quarters of flat sentiment. The graph below displays the number of hedge funds with bullish position in GSM over the last 5 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Blue Harbour Group, led by Clifton S. Robbins, holds the largest position in Ferroglobe PLC (NASDAQ:GSM). Blue Harbour Group has a $65.3 million position in the stock, comprising 2.4% of its 13F portfolio. On Blue Harbour Group’s heels is Adage Capital Management, led by Phill Gross and Robert Atchinson, which holds a $57.9 million position. Other peers that are bullish encompass Millennium Management, one of the 10 largest hedge funds in the world, David E. Shaw’s D E Shaw, and Jay Petschek and Steven Major’s Corsair Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually got rid of their positions entirely. Intriguingly, Benjamin A. Smith’s Laurion Capital Management got rid of the biggest investment of the 700 funds monitored by Insider Monkey, valued at about $7.1 million in stock. Jim Simons’ fund, Renaissance Technologies, also dumped its stock, about $2.8 million worth.

Let’s now review hedge fund activity in other stocks similar to Ferroglobe PLC (NASDAQ:GSM). We will take a look at NIC Inc. (NASDAQ:EGOV), Noble Corporation (NYSE:NE), Enerplus Corp (USA) (NYSE:ERF), and California Water Service Group (NYSE:CWT). All of these stocks’ market caps resemble GSM’s market cap.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $127 million. That figure was $236 million in GSM’s case. Noble Corporation (NYSE:NE) is the most popular stock in this table. On the other hand California Water Service Group (NYSE:CWT) is the least popular one with only 11 bullish hedge fund positions. Ferroglobe PLC (NASDAQ:GSM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NE might be a better candidate to consider taking a long position in.

Disclosure: None