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Is Global Indemnity Limited (GBLI) Going to Burn These Hedge Funds?

Nina Todic

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Global Indemnity Limited (NASDAQ:GBLI), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Global Indemnity Limited (NASDAQ:GBLI) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 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 Utah Medical Products, Inc. (NASDAQ:UTMD), PCSB Financial Corporation (NASDAQ:PCSB), and Diamond Eagle Acquisition Corp. (NASDAQ:DEACU) to gather more data points. Our calculations also showed that GBLI 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.

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_27676" align="aligncenter" width="355"] Israel Englander of Millennium Management[/caption]

MILLENNIUM MANAGEMENT

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. Now we're going to analyze the recent hedge fund action regarding Global Indemnity Limited (NASDAQ:GBLI).

What have hedge funds been doing with Global Indemnity Limited (NASDAQ:GBLI)?

At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 7 hedge funds held shares or bullish call options in GBLI a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Springhouse Capital Management held the most valuable stake in Global Indemnity Limited (NASDAQ:GBLI), which was worth $18.7 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $3.9 million worth of shares. Capital Returns Management, Cove Street Capital, and Millennium 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 Springhouse Capital Management allocated the biggest weight to Global Indemnity Limited (NASDAQ:GBLI), around 12.54% of its 13F portfolio. Capital Returns Management is also relatively very bullish on the stock, setting aside 2.05 percent of its 13F equity portfolio to GBLI.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).

Let's check out hedge fund activity in other stocks similar to Global Indemnity Limited (NASDAQ:GBLI). These stocks are Utah Medical Products, Inc. (NASDAQ:UTMD), PCSB Financial Corporation (NASDAQ:PCSB), Diamond Eagle Acquisition Corp. (NASDAQ:DEACU), and Enterprise Bancorp, Inc (NASDAQ:EBTC). All of these stocks' market caps are similar to GBLI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UTMD,6,34813,0 PCSB,9,26855,-1 DEACU,7,62426,7 EBTC,4,2372,3 Average,6.5,31617,2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $25 million in GBLI's case. PCSB Financial Corporation (NASDAQ:PCSB) is the most popular stock in this table. On the other hand Enterprise Bancorp, Inc (NASDAQ:EBTC) is the least popular one with only 4 bullish hedge fund positions. Global Indemnity Limited (NASDAQ:GBLI) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on GBLI as the stock returned 15.2% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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