We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Gerdau SA (NYSE:GGB).
Is Gerdau SA (NYSE:GGB) a buy here? Hedge funds are becoming less hopeful. The number of long hedge fund positions decreased by 3 in recent months. Our calculations also showed that GGB isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to go over the new hedge fund action regarding Gerdau SA (NYSE:GGB).
Hedge fund activity in Gerdau SA (NYSE:GGB)
At Q2's end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -30% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in GGB a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, Contrarian Capital held the most valuable stake in Gerdau SA (NYSE:GGB), which was worth $83 million at the end of the second quarter. On the second spot was Contrarian Capital which amassed $29 million worth of shares. Moreover, Fisher Asset Management, Citadel Investment Group, and PEAK6 Capital Management were also bullish on Gerdau SA (NYSE:GGB), allocating a large percentage of their portfolios to this stock.
Since Gerdau SA (NYSE:GGB) has experienced a decline in interest from the aggregate hedge fund industry, it's safe to say that there exists a select few funds that elected to cut their full holdings in the second quarter. Intriguingly, Noam Gottesman's GLG Partners said goodbye to the biggest position of the "upper crust" of funds followed by Insider Monkey, valued at close to $37.6 million in stock, and Ken Heebner's Capital Growth Management was right behind this move, as the fund dumped about $26.8 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 3 funds in the second quarter.
Let's also examine hedge fund activity in other stocks similar to Gerdau SA (NYSE:GGB). These stocks are Starwood Property Trust, Inc. (NYSE:STWD), Companhia Brasileira de Distrib. (NYSE:CBD), Brookfield Renewable Partners L.P. (NYSE:BEP), and Newell Brands Inc. (NASDAQ:NWL). All of these stocks' market caps are closest to GGB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STWD,14,136432,-1 CBD,11,62442,-1 BEP,4,7705,1 NWL,29,1131918,-1 Average,14.5,334624,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $335 million. That figure was $117 million in GGB's case. Newell Brands Inc. (NASDAQ:NWL) is the most popular stock in this table. On the other hand Brookfield Renewable Partners L.P. (NYSE:BEP) is the least popular one with only 4 bullish hedge fund positions. Gerdau SA (NYSE:GGB) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately GGB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GGB investors were disappointed as the stock returned -18.6% during the third quarter and underperformed 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.