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Did Hedge Funds Drop The Ball On Gridsum Holding Inc. (GSUM) ?

Nina Todic

"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Gridsum Holding Inc. (NASDAQ:GSUM).

Is Gridsum Holding Inc. (NASDAQ:GSUM) a healthy stock for your portfolio? Prominent investors are getting more optimistic. The number of bullish hedge fund positions went up by 1 lately. Our calculations also showed that GSUM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). GSUM was in 5 hedge funds' portfolios at the end of September. There were 4 hedge funds in our database with GSUM holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 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 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.

[caption id="attachment_26340" align="aligncenter" width="467"] Ken Griffin of Citadel Investment Group[/caption]

CITADEL INVESTMENT GROUP

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 take a gander at the new hedge fund action encompassing Gridsum Holding Inc. (NASDAQ:GSUM).

How have hedgies been trading Gridsum Holding Inc. (NASDAQ:GSUM)?

At Q3's end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in GSUM a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Glen Kacher's Light Street Capital has the most valuable position in Gridsum Holding Inc. (NASDAQ:GSUM), worth close to $4.9 million, amounting to 0.4% of its total 13F portfolio. The second largest stake is held by Moon Capital, managed by John W. Moon, which holds a $4 million position; 1.5% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that are bullish consist of Renaissance Technologies, Ken Griffin's Citadel Investment Group and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital. In terms of the portfolio weights assigned to each position Moon Capital allocated the biggest weight to Gridsum Holding Inc. (NASDAQ:GSUM), around 1.45% of its 13F portfolio. Light Street Capital is also relatively very bullish on the stock, setting aside 0.35 percent of its 13F equity portfolio to GSUM.

As aggregate interest increased, specific money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, established the most valuable position in Gridsum Holding Inc. (NASDAQ:GSUM). Citadel Investment Group had $0 million invested in the company at the end of the quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Gridsum Holding Inc. (NASDAQ:GSUM) but similarly valued. These stocks are Full House Resorts, Inc. (NASDAQ:FLL), Espey Mfg. & Electronics Corp. (NYSE:ESP), Air T, Inc. (NASDAQ:AIRT), and ReneSola Ltd. (NYSE:SOL). This group of stocks' market caps match GSUM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FLL,6,7121,1 ESP,1,3487,0 AIRT,1,4038,0 SOL,2,6882,0 Average,2.5,5382,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.5 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $10 million in GSUM's case. Full House Resorts, Inc. (NASDAQ:FLL) is the most popular stock in this table. On the other hand Espey Mfg. & Electronics Corp. (NYSE:ESP) is the least popular one with only 1 bullish hedge fund positions. Gridsum Holding Inc. (NASDAQ:GSUM) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on GSUM as the stock returned 35.1% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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