Were Hedge Funds Right About Selling Genco Shipping & Trading Limited (GNK)?

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 Genco Shipping & Trading Limited (NYSE:GNK) and determine whether the smart money was really smart about this stock.

Is Genco Shipping & Trading Limited (NYSE:GNK) going to take off soon? The smart money was becoming less hopeful. The number of long hedge fund bets were cut by 4 recently. Our calculations also showed that GNK 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). GNK was in 12 hedge funds’ portfolios at the end of the first quarter of 2020. There were 16 hedge funds in our database with GNK holdings at the end of the previous quarter.

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

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 let’s take a glance at the recent hedge fund action encompassing Genco Shipping & Trading Limited (NYSE:GNK).

Hedge fund activity in Genco Shipping & Trading Limited (NYSE:GNK)

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GNK over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

The largest stake in Genco Shipping & Trading Limited (NYSE:GNK) was held by Centerbridge Partners, which reported holding $67.3 million worth of stock at the end of September. It was followed by Strategic Value Partners with a $52.4 million position. Other investors bullish on the company included Mangrove Partners, Arrowstreet Capital, and Millennium Management. In terms of the portfolio weights assigned to each position Strategic Value Partners allocated the biggest weight to Genco Shipping & Trading Limited (NYSE:GNK), around 16.51% of its 13F portfolio. Centerbridge Partners is also relatively very bullish on the stock, earmarking 16.33 percent of its 13F equity portfolio to GNK.

Seeing as Genco Shipping & Trading Limited (NYSE:GNK) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds who sold off their entire stakes heading into Q4. It’s worth mentioning that David Brown’s Hawk Ridge Management sold off the biggest investment of the “upper crust” of funds watched by Insider Monkey, comprising close to $30.6 million in stock, and John Horseman’s Horseman Capital Management was right behind this move, as the fund dumped about $1.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 4 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Genco Shipping & Trading Limited (NYSE:GNK) but similarly valued. We will take a look at Pioneer Bancorp, Inc. (NASDAQ:PBFS), Red River Bancshares, Inc. (NASDAQ:RRBI), AdvanSix Inc. (NYSE:ASIX), and Evofem Biosciences, Inc. (NASDAQ:EVFM). This group of stocks’ market caps are similar to GNK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PBFS 4 2873 1
RRBI 2 959 0
ASIX 13 44050 0
EVFM 4 3603 2
Average 5.75 12871 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $135 million in GNK’s case. AdvanSix Inc. (NYSE:ASIX) is the most popular stock in this table. On the other hand Red River Bancshares, Inc. (NASDAQ:RRBI) is the least popular one with only 2 bullish hedge fund positions. Genco Shipping & Trading Limited (NYSE:GNK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately GNK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GNK were disappointed as the stock returned -1.8% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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