Were Hedge Funds Right About Gates Industrial Corporation plc (GTES) ?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. What do these smart investors think about Gates Industrial Corporation plc (NYSE:GTES)?

Gates Industrial Corporation plc (NYSE:GTES) shareholders have witnessed a decrease in hedge fund interest of late. Our calculations also showed that GTES isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

Keeping this in mind let’s check out the latest hedge fund action regarding Gates Industrial Corporation plc (NYSE:GTES).

What does smart money think about Gates Industrial Corporation plc (NYSE:GTES)?

At Q4’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -40% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GTES over the last 18 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 Gates Industrial Corporation plc (NYSE:GTES) was held by Adage Capital Management, which reported holding $52.1 million worth of stock at the end of September. It was followed by Winton Capital Management with a $2.8 million position. Other investors bullish on the company included AQR Capital Management, Millennium Management, and Jade Capital Advisors. In terms of the portfolio weights assigned to each position Jade Capital Advisors allocated the biggest weight to Gates Industrial Corporation plc (NYSE:GTES), around 0.68% of its 13F portfolio. Adage Capital Management is also relatively very bullish on the stock, designating 0.13 percent of its 13F equity portfolio to GTES.

Due to the fact that Gates Industrial Corporation plc (NYSE:GTES) has faced bearish sentiment from hedge fund managers, it’s easy to see that there were a few money managers who sold off their positions entirely by the end of the third quarter. At the top of the heap, Joseph Samuels’s Islet Management dumped the largest investment of the “upper crust” of funds tracked by Insider Monkey, worth close to $1.5 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dropped about $0.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 6 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Gates Industrial Corporation plc (NYSE:GTES) but similarly valued. We will take a look at Two Harbors Investment Corp (NYSE:TWO), Clearway Energy, Inc. (NYSE:CWEN), Cinemark Holdings, Inc. (NYSE:CNK), and RBC Bearings Incorporated (NASDAQ:ROLL). This group of stocks’ market valuations resemble GTES’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TWO 20 109765 4
CWEN 23 233438 2
CNK 22 219355 -1
ROLL 10 48753 3
Average 18.75 152828 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $61 million in GTES’s case. Clearway Energy, Inc. (NYSE:CWEN) is the most popular stock in this table. On the other hand RBC Bearings Incorporated (NASDAQ:ROLL) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Gates Industrial Corporation plc (NYSE:GTES) is even less popular than ROLL. Hedge funds dodged a bullet by taking a bearish stance towards GTES. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately GTES wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); GTES investors were disappointed as the stock returned -49.6% during the same time period 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 most of these stocks already outperformed the market so far in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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