Were Hedge Funds Right About Flocking Into Genesee & Wyoming Inc (GWR)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Genesee & Wyoming Inc (NYSE:GWR).

Genesee & Wyoming Inc (NYSE:GWR) shareholders have witnessed an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that GWR 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.

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’ 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.


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. We’re going to take a look at the latest hedge fund action regarding Genesee & Wyoming Inc (NYSE:GWR).

What have hedge funds been doing with Genesee & Wyoming Inc (NYSE:GWR)?

At the end of the second quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the first quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in GWR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Charles Davidson - Wexford Capital

Among these funds, Blue Harbour Group held the most valuable stake in Genesee & Wyoming Inc (NYSE:GWR), which was worth $200.8 million at the end of the second quarter. On the second spot was Farallon Capital which amassed $77.5 million worth of shares. Moreover, Cardinal Capital, Goodnow Investment Group, and Citadel Investment Group were also bullish on Genesee & Wyoming Inc (NYSE:GWR), allocating a large percentage of their portfolios to this stock.

Consequently, key hedge funds have been driving this bullishness. Farallon Capital, initiated the most outsized position in Genesee & Wyoming Inc (NYSE:GWR). Farallon Capital had $77.5 million invested in the company at the end of the quarter. Himanshu Gulati’s Antara Capital also made a $21 million investment in the stock during the quarter. The other funds with new positions in the stock are Kelly Hampaul’s Everett Capital Advisors, Matthew Mark’s Jet Capital Investors, and Charles Davidson and Joseph Jacobs’s Wexford Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Genesee & Wyoming Inc (NYSE:GWR) but similarly valued. We will take a look at Watsco Inc (NYSE:WSO), Haemonetics Corporation (NYSE:HAE), Cree, Inc. (NASDAQ:CREE), and Farfetch Limited (NYSE:FTCH). All of these stocks’ market caps are closest to GWR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WSO 22 171755 4
HAE 23 762479 -1
CREE 24 425587 10
FTCH 24 598527 -19
Average 23.25 489587 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $490 million. That figure was $596 million in GWR’s case. Cree, Inc. (NASDAQ:CREE) is the most popular stock in this table. On the other hand Watsco Inc (NYSE:WSO) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Genesee & Wyoming Inc (NYSE:GWR) is more popular among hedge funds. 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. Hedge funds were also right about betting on GWR as the stock returned 10.5% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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