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How Did General Dynamics Corporation (GD) Compare Against Hedge Fund Darlings in 2019?

Debasis Saha

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 approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% 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 General Dynamics Corporation (NYSE:GD).

General Dynamics Corporation (NYSE:GD) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 40 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as HDFC Bank Limited (NYSE:HDB), Uber Technologies, Inc. (NYSE:UBER), and Intercontinental Exchange Inc (NYSE:ICE) to gather more data points. Our calculations also showed that GD 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).

If you'd ask most shareholders, hedge funds are assumed to be unimportant, outdated investment vehicles of yesteryear. While there are over 8000 funds in operation today, We hone in on the crème de la crème of this club, about 750 funds. These hedge fund managers direct the lion's share of the smart money's total asset base, and by keeping track of their best picks, Insider Monkey has spotted various investment strategies that have historically exceeded Mr. Market. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

FARALLON CAPITAL

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. 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 already gained 20 percent. Keeping this in mind let's check out the latest hedge fund action encompassing General Dynamics Corporation (NYSE:GD).

How have hedgies been trading General Dynamics Corporation (NYSE:GD)?

Heading into the fourth quarter of 2019, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GD over the last 17 quarters. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is GD A Good Stock To Buy?

Among these funds, Longview Asset Management held the most valuable stake in General Dynamics Corporation (NYSE:GD), which was worth $6011.5 million at the end of the third quarter. On the second spot was Farallon Capital which amassed $181.2 million worth of shares. Adage Capital Management, Millennium Management, and AQR Capital Management 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 Longview Asset Management allocated the biggest weight to General Dynamics Corporation (NYSE:GD), around 94.01% of its 13F portfolio. Impala Asset Management is also relatively very bullish on the stock, earmarking 5.82 percent of its 13F equity portfolio to GD.

Judging by the fact that General Dynamics Corporation (NYSE:GD) has faced declining sentiment from the aggregate hedge fund industry, it's safe to say that there exists a select few fund managers who sold off their full holdings in the third quarter. Intriguingly, Panayotis Takis Sparaggis's Alkeon Capital Management sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, valued at about $53.1 million in stock. Renaissance Technologies, also dropped its stock, about $48.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as General Dynamics Corporation (NYSE:GD) but similarly valued. We will take a look at HDFC Bank Limited (NYSE:HDB), Uber Technologies, Inc. (NYSE:UBER), Intercontinental Exchange Inc (NYSE:ICE), and The Sherwin-Williams Company (NYSE:SHW). This group of stocks' market values are closest to GD's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HDB,36,2347772,9 UBER,45,3397033,-11 ICE,43,2290732,8 SHW,45,1587764,5 Average,42.25,2405825,2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.25 hedge funds with bullish positions and the average amount invested in these stocks was $2406 million. That figure was $7034 million in GD's case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand HDFC Bank Limited (NYSE:HDB) is the least popular one with only 36 bullish hedge fund positions. General Dynamics Corporation (NYSE:GD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately GD wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GD investors were disappointed as the stock returned 17% in 2019 (as of 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019. 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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