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2019 Review: Top Hedge Fund Stocks vs. Great Lakes Dredge & Dock Corporation (GLDD)

Asma UL Husna

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD).

Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) has seen an increase in enthusiasm from smart money lately. GLDD was in 24 hedge funds' portfolios at the end of the third quarter of 2019. There were 22 hedge funds in our database with GLDD positions at the end of the previous quarter. Our calculations also showed that GLDD isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_267751" align="aligncenter" width="450"] Nelson Obus of Wynnefield Capital[/caption]

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we're going to take a look at the recent hedge fund action encompassing Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD).

Hedge fund activity in Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD)

At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GLDD over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD), which was worth $21.2 million at the end of the third quarter. On the second spot was D E Shaw which amassed $15.7 million worth of shares. AQR Capital Management, Minerva Advisors, and Wynnefield 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 Minerva Advisors allocated the biggest weight to Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD), around 6.17% of its 13F portfolio. Wynnefield Capital is also relatively very bullish on the stock, setting aside 5.25 percent of its 13F equity portfolio to GLDD.

As one would reasonably expect, key money managers have jumped into Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) headfirst. Encompass Capital Advisors, managed by Todd J. Kantor, established the largest position in Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD). Encompass Capital Advisors had $4 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also initiated a $0.2 million position during the quarter. The other funds with brand new GLDD positions are Matthew Hulsizer's PEAK6 Capital Management and Matthew Hulsizer's PEAK6 Capital Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) but similarly valued. We will take a look at Foundation Building Materials, Inc. (NYSE:FBM), Plug Power, Inc. (NASDAQ:PLUG), Barrett Business Services, Inc. (NASDAQ:BBSI), and Houghton Mifflin Harcourt Co (NASDAQ:HMHC). This group of stocks' market caps are closest to GLDD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FBM,24,74715,14 PLUG,9,44087,1 BBSI,11,76189,0 HMHC,13,191389,-1 Average,14.25,96595,3.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $104 million in GLDD's case. Foundation Building Materials, Inc. (NYSE:FBM) is the most popular stock in this table. On the other hand Plug Power, Inc. (NASDAQ:PLUG) is the least popular one with only 9 bullish hedge fund positions. Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on GLDD as the stock returned 71.1% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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