Were Hedge Funds Right About Dumping GoPro Inc (GPRO)?

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like GoPro Inc (NASDAQ:GPRO).

GoPro Inc (NASDAQ:GPRO) shareholders have witnessed a decrease in enthusiasm from smart money of late. GPRO was in 16 hedge funds’ portfolios at the end of September. There were 19 hedge funds in our database with GPRO holdings at the end of the previous quarter. Our calculations also showed that GPRO 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.

At the moment there are a lot of signals shareholders use to evaluate their stock investments. A pair of the most under-the-radar signals are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the best investment managers can trounce the market by a superb amount (see the details here).

David Harding

David Harding of Winton Capital Management

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. Let’s analyze the recent hedge fund action surrounding GoPro Inc (NASDAQ:GPRO).

Hedge fund activity in GoPro Inc (NASDAQ:GPRO)

At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GPRO over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Lynrock Lake, managed by Cynthia Paul, holds the number one position in GoPro Inc (NASDAQ:GPRO). Lynrock Lake has a $103 million position in the stock, comprising 13.2% of its 13F portfolio. The second largest stake is held by David E. Shaw of D E Shaw, with a $30.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism contain Renaissance Technologies, Kenneth Tropin’s Graham Capital Management and Chet Kapoor’s Tenzing Global Investors. In terms of the portfolio weights assigned to each position Lynrock Lake allocated the biggest weight to GoPro Inc (NASDAQ:GPRO), around 13.16% of its 13F portfolio. Tenzing Global Investors is also relatively very bullish on the stock, designating 2.53 percent of its 13F equity portfolio to GPRO.

Judging by the fact that GoPro Inc (NASDAQ:GPRO) has faced declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of funds who sold off their full holdings last quarter. Intriguingly, John Overdeck and David Siegel’s Two Sigma Advisors sold off the biggest position of all the hedgies tracked by Insider Monkey, valued at an estimated $12.6 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace was right behind this move, as the fund sold off about $8.5 million worth. These moves are important to note, as total hedge fund interest dropped by 3 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to GoPro Inc (NASDAQ:GPRO). We will take a look at Oritani Financial Corp. (NASDAQ:ORIT), Homology Medicines, Inc. (NASDAQ:FIXX), BJ’s Restaurants, Inc. (NASDAQ:BJRI), and Vivint Solar Inc (NYSE:VSLR). This group of stocks’ market values are similar to GPRO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ORIT 8 43932 2
FIXX 12 174472 -6
BJRI 9 82659 -5
VSLR 11 55263 0
Average 10 89082 -2.25

View table here if you experience formatting issues.

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 $89 million. That figure was $181 million in GPRO’s case. Homology Medicines, Inc. (NASDAQ:FIXX) is the most popular stock in this table. On the other hand Oritani Financial Corp. (NASDAQ:ORIT) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks GoPro Inc (NASDAQ:GPRO) 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 GPRO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GPRO were disappointed as the stock returned -22.1% 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.