Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. 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 Glaukos Corporation (NYSE:GKOS).
Glaukos Corporation (NYSE:GKOS) was in 11 hedge funds' portfolios at the end of September. GKOS investors should pay attention to a decrease in activity from the world's largest hedge funds of late. There were 15 hedge funds in our database with GKOS positions at the end of the previous quarter. Our calculations also showed that GKOS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_221556" align="aligncenter" width="450"] Richard Driehaus of Driehaus 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. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to review the key hedge fund action regarding Glaukos Corporation (NYSE:GKOS).
What does smart money think about Glaukos Corporation (NYSE:GKOS)?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from the second quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in GKOS a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the number one position in Glaukos Corporation (NYSE:GKOS). Citadel Investment Group has a $26.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Renaissance Technologies which holds a $16.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish encompass Dmitry Balyasny's Balyasny Asset Management, Noam Gottesman's GLG Partners and Richard Driehaus's Driehaus Capital. In terms of the portfolio weights assigned to each position Driehaus Capital allocated the biggest weight to Glaukos Corporation (NYSE:GKOS), around 0.11% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to GKOS.
Since Glaukos Corporation (NYSE:GKOS) has witnessed declining sentiment from the entirety of the hedge funds we track, it's safe to say that there was a specific group of hedge funds that slashed their full holdings heading into Q4. At the top of the heap, Steve Cohen's Point72 Asset Management sold off the biggest stake of the 750 funds followed by Insider Monkey, comprising about $11.3 million in stock. Efrem Kamen's fund, Pura Vida Investments, also sold off its stock, about $2.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds heading into Q4.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Glaukos Corporation (NYSE:GKOS) but similarly valued. We will take a look at LCI Industries (NYSE:LCII), Beacon Roofing Supply, Inc. (NASDAQ:BECN), Natera Inc (NASDAQ:NTRA), and Seaspan Corporation (NYSE:SSW). All of these stocks' market caps match GKOS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LCII,14,98568,4 BECN,21,331266,5 NTRA,22,270162,2 SSW,12,855040,5 Average,17.25,388759,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $389 million. That figure was $70 million in GKOS's case. Natera Inc (NASDAQ:NTRA) is the most popular stock in this table. On the other hand Seaspan Corporation (NYSE:SSW) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Glaukos Corporation (NYSE:GKOS) is even less popular than SSW. Hedge funds dodged a bullet by taking a bearish stance towards GKOS. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GKOS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); GKOS investors were disappointed as the stock returned 2.6% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.