We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards GCP Applied Technologies Inc. (NYSE:GCP) and determine whether hedge funds skillfully traded this stock.
GCP Applied Technologies Inc. (NYSE:GCP) has experienced an increase in hedge fund sentiment of late. GCP Applied Technologies Inc. (NYSE:GCP) was in 21 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 30. There were 12 hedge funds in our database with GCP positions at the end of the first quarter. Our calculations also showed that GCP isn't among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David S. Winter of 40 North Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let's take a peek at the latest hedge fund action regarding GCP Applied Technologies Inc. (NYSE:GCP).
How are hedge funds trading GCP Applied Technologies Inc. (NYSE:GCP)?
At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 75% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in GCP a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
More specifically, Starboard Value LP was the largest shareholder of GCP Applied Technologies Inc. (NYSE:GCP), with a stake worth $121.5 million reported as of the end of September. Trailing Starboard Value LP was 40 North Management, which amassed a stake valued at $95 million. GAMCO Investors, Greenhouse Funds, and Cove Street 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 Starboard Value LP allocated the biggest weight to GCP Applied Technologies Inc. (NYSE:GCP), around 4.33% of its 13F portfolio. 40 North Management is also relatively very bullish on the stock, dishing out 2.91 percent of its 13F equity portfolio to GCP.
Consequently, some big names have been driving this bullishness. Electron Capital Partners, managed by Jos Shaver, established the most valuable position in GCP Applied Technologies Inc. (NYSE:GCP). Electron Capital Partners had $7.7 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $0.8 million position during the quarter. The following funds were also among the new GCP investors: Donald Sussman's Paloma Partners, Paul Marshall and Ian Wace's Marshall Wace LLP, and Steve Cohen's Point72 Asset Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as GCP Applied Technologies Inc. (NYSE:GCP) but similarly valued. We will take a look at Bed Bath & Beyond Inc. (NASDAQ:BBBY), Weis Markets, Inc. (NYSE:WMK), NGM Biopharmaceuticals, Inc. (NASDAQ:NGM), NBT Bancorp Inc. (NASDAQ:NBTB), OSI Systems, Inc. (NASDAQ:OSIS), Industrial Logistics Properties Trust (NASDAQ:ILPT), and Black Stone Minerals LP (NYSE:BSM). This group of stocks' market caps are similar to GCP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBBY,33,351185,5 WMK,19,51204,7 NGM,12,106170,0 NBTB,9,14109,5 OSIS,13,29529,-2 ILPT,9,50520,0 BSM,5,6083,2 Average,14.3,86971,2.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.3 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $342 million in GCP's case. Bed Bath & Beyond Inc. (NASDAQ:BBBY) is the most popular stock in this table. On the other hand Black Stone Minerals LP (NYSE:BSM) is the least popular one with only 5 bullish hedge fund positions. GCP Applied Technologies Inc. (NYSE:GCP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GCP is 59.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on GCP as the stock returned 12.8% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.