Were Hedge Funds Right About Piling Into Gartner Inc (IT)?

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 Gartner Inc (NYSE:IT) based on that data and determine whether they were really smart about the stock.

Gartner Inc (NYSE:IT) has seen an increase in hedge fund interest recently. IT was in 32 hedge funds’ portfolios at the end of March. There were 26 hedge funds in our database with IT holdings at the end of the previous quarter. Our calculations also showed that IT 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.

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Blood

David Blood of Generation Investment Management

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. 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. Now we’re going to take a gander at the recent hedge fund action surrounding Gartner Inc (NYSE:IT).

What does smart money think about Gartner Inc (NYSE:IT)?

Heading into the second quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in IT a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Generation Investment Management, managed by David Blood and Al Gore, holds the biggest position in Gartner Inc (NYSE:IT). Generation Investment Management has a $396.5 million position in the stock, comprising 2.8% of its 13F portfolio. Coming in second is Bares Capital Management, managed by Brian Bares, which holds a $251.3 million position; the fund has 9.1% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise Gabriel Plotkin’s Melvin Capital Management, Ken Griffin’s Citadel Investment Group and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Bares Capital Management allocated the biggest weight to Gartner Inc (NYSE:IT), around 9.06% of its 13F portfolio. Greenhouse Funds is also relatively very bullish on the stock, earmarking 4.2 percent of its 13F equity portfolio to IT.

As industrywide interest jumped, specific money managers have jumped into Gartner Inc (NYSE:IT) headfirst. Generation Investment Management, managed by David Blood and Al Gore, established the biggest position in Gartner Inc (NYSE:IT). Generation Investment Management had $396.5 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $36.3 million investment in the stock during the quarter. The following funds were also among the new IT investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Edward Goodnow’s Goodnow Investment Group, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Gartner Inc (NYSE:IT) but similarly valued. These stocks are Pinterest, Inc. (NYSE:PINS), GDS Holdings Limited (NASDAQ:GDS), CarMax Inc (NYSE:KMX), and Raymond James Financial, Inc. (NYSE:RJF). This group of stocks’ market caps are similar to IT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PINS 38 410292 1
GDS 41 1618404 7
KMX 37 1084332 -13
RJF 31 441370 3
Average 36.75 888600 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.75 hedge funds with bullish positions and the average amount invested in these stocks was $889 million. That figure was $973 million in IT’s case. GDS Holdings Limited (NASDAQ:GDS) is the most popular stock in this table. On the other hand Raymond James Financial, Inc. (NYSE:RJF) is the least popular one with only 31 bullish hedge fund positions. Gartner Inc (NYSE:IT) is not the least popular stock in this group but hedge fund interest is still below average. 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 but beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on IT, though not to the same extent, as the stock returned 21.9% during the second quarter and outperformed the market.

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