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Were Hedge Funds Right About Generac Holdings Inc. (GNRC)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Generac Holdings Inc. (NYSE:GNRC) based on that data and determine whether they were really smart about the stock.

Is Generac Holdings Inc. (NYSE:GNRC) a healthy stock for your portfolio? The smart money was selling. The number of long hedge fund bets dropped by 3 recently. Our calculations also showed that GNRC 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In the eyes of most traders, hedge funds are assumed to be unimportant, outdated financial tools of years past. While there are greater than 8000 funds with their doors open at present, Our experts choose to focus on the elite of this club, approximately 850 funds. These hedge fund managers manage the lion’s share of the smart money’s total asset base, and by tracking their unrivaled picks, Insider Monkey has identified a number of investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind we’re going to take a peek at the key hedge fund action surrounding Generac Holdings Inc. (NYSE:GNRC).

How are hedge funds trading Generac Holdings Inc. (NYSE:GNRC)?

At Q1’s end, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GNRC over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Impax Asset Management, managed by Ian Simm, holds the largest position in Generac Holdings Inc. (NYSE:GNRC). Impax Asset Management has a $79.8 million position in the stock, comprising 1.1% of its 13F portfolio. On Impax Asset Management’s heels is Ariel Investments, managed by John W. Rogers, which holds a $30.2 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism comprise Till Bechtolsheimer’s Arosa Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Arosa Capital Management allocated the biggest weight to Generac Holdings Inc. (NYSE:GNRC), around 2.14% of its 13F portfolio. BeaconLight Capital is also relatively very bullish on the stock, designating 1.84 percent of its 13F equity portfolio to GNRC.

Judging by the fact that Generac Holdings Inc. (NYSE:GNRC) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there is a sect of money managers that decided to sell off their entire stakes heading into Q4. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at about $35.4 million in stock. Renaissance Technologies, also said goodbye to its stock, about $25.8 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 3 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Generac Holdings Inc. (NYSE:GNRC) but similarly valued. These stocks are Bunge Limited (NYSE:BG), Avalara, Inc. (NYSE:AVLR), MGM Resorts International (NYSE:MGM), and Post Holdings Inc (NYSE:POST). This group of stocks’ market valuations are similar to GNRC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BG 39 543155 2
AVLR 34 970359 -13
MGM 50 943490 0
POST 31 1195411 -7
Average 38.5 913104 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.5 hedge funds with bullish positions and the average amount invested in these stocks was $913 million. That figure was $192 million in GNRC’s case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand Post Holdings Inc (NYSE:POST) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Generac Holdings Inc. (NYSE:GNRC) is even less popular than POST. Hedge funds clearly dropped the ball on GNRC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on GNRC as the stock returned 30.9% in the second quarter and outperformed the market by an even larger margin.

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