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Were Hedge Funds Right About GDS Holdings Limited (GDS) ?

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. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded GDS Holdings Limited (NASDAQ:GDS) and determine whether the smart money was really smart about this stock.

GDS Holdings Limited (NASDAQ:GDS) has seen an increase in hedge fund interest recently. Our calculations also showed that GDS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are a multitude of signals market participants employ to grade publicly traded companies. Some of the most innovative signals are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the top hedge fund managers can outperform their index-focused peers by a superb margin (see the details here).

Glen Kacher of Light Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s review the fresh hedge fund action encompassing GDS Holdings Limited (NASDAQ:GDS).

How are hedge funds trading GDS Holdings Limited (NASDAQ:GDS)?

At the end of the first quarter, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the fourth quarter of 2019. On the other hand, there were a total of 33 hedge funds with a bullish position in GDS a year ago. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Among these funds, 12 West Capital Management held the most valuable stake in GDS Holdings Limited (NASDAQ:GDS), which was worth $634.3 million at the end of the third quarter. On the second spot was Tiger Global Management LLC which amassed $332.2 million worth of shares. D E Shaw, Kylin Management, and Light Street Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position 12 West Capital Management allocated the biggest weight to GDS Holdings Limited (NASDAQ:GDS), around 37.81% of its 13F portfolio. Kylin Management is also relatively very bullish on the stock, setting aside 24.77 percent of its 13F equity portfolio to GDS.

As industrywide interest jumped, specific money managers were breaking ground themselves. Cartica Management, managed by Teresa Barger, initiated the most outsized position in GDS Holdings Limited (NASDAQ:GDS). Cartica Management had $19.3 million invested in the company at the end of the quarter. Charles Clough’s Clough Capital Partners also made a $18.4 million investment in the stock during the quarter. The following funds were also among the new GDS investors: Josh Resnick’s Jericho Capital Asset Management, Leung Chi Kit’s Kadensa Capital, and Joseph Samuels’s Islet Management.

Let’s go over hedge fund activity in other stocks similar to GDS Holdings Limited (NASDAQ:GDS). We will take a look at CarMax Inc (NYSE:KMX), Raymond James Financial, Inc. (NYSE:RJF), The Trade Desk, Inc. (NASDAQ:TTD), and Celanese Corporation (NYSE:CE). This group of stocks’ market valuations are similar to GDS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KMX 37 1084332 -13
RJF 31 441370 3
TTD 25 393525 1
CE 29 509076 -2
Average 30.5 607076 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $607 million. That figure was $1618 million in GDS’s case. CarMax Inc (NYSE:KMX) is the most popular stock in this table. On the other hand The Trade Desk, Inc. (NASDAQ:TTD) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks GDS Holdings Limited (NASDAQ:GDS) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on GDS as the stock returned 37.4% in Q2 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.

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