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Were Hedge Funds Right About Flocking Into Gardner Denver Holdings, Inc. (GDI) ?

The financial regulations require hedge funds and wealthy investors that crossed the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on June 28th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Gardner Denver Holdings, Inc. (NYSE:GDI) based on those filings.

Is Gardner Denver Holdings, Inc. (NYSE:GDI) a buy here? The smart money is in a bullish mood. The number of long hedge fund positions increased by 1 recently. Our calculations also showed that GDI isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 40 percentage points since May 2014 through May 30, 2019 (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.

Andreas Halvorsen

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the recent hedge fund action surrounding Gardner Denver Holdings, Inc. (NYSE:GDI).

What have hedge funds been doing with Gardner Denver Holdings, Inc. (NYSE:GDI)?

Heading into the third quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in GDI a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

GDI_oct2019

The largest stake in Gardner Denver Holdings, Inc. (NYSE:GDI) was held by Goodnow Investment Group, which reported holding $53.8 million worth of stock at the end of March. It was followed by Viking Global with a $44.4 million position. Other investors bullish on the company included AQR Capital Management, Two Sigma Advisors, and Scopus Asset Management.

As industrywide interest jumped, some big names were leading the bulls’ herd. Viking Global, managed by Andreas Halvorsen, established the most valuable position in Gardner Denver Holdings, Inc. (NYSE:GDI). Viking Global had $44.4 million invested in the company at the end of the quarter. Guy Shahar’s DSAM Partners also made a $15.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Brandon Haley’s Holocene Advisors, Gregg Moskowitz’s Interval Partners, and Richard Driehaus’s Driehaus Capital.

Let’s now review hedge fund activity in other stocks similar to Gardner Denver Holdings, Inc. (NYSE:GDI). These stocks are LINE Corporation (NYSE:LN), Flowserve Corporation (NYSE:FLS), GrubHub Inc (NYSE:GRUB), and Old Republic International Corporation (NYSE:ORI). This group of stocks’ market values match GDI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LN 9 46156 4
FLS 26 343957 6
GRUB 32 808367 0
ORI 21 413524 2
Average 22 403001 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $403 million. That figure was $294 million in GDI’s case. GrubHub Inc (NYSE:GRUB) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 9 bullish hedge fund positions. Gardner Denver Holdings, Inc. (NYSE:GDI) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately GDI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GDI were disappointed as the stock returned -18.2% during the third 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 many of these stocks already outperformed the market so far this year.

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

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