Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Graco Inc. (NYSE:GGG) in this article.
Graco Inc. (NYSE:GGG) was in 19 hedge funds' portfolios at the end of the third quarter of 2019. GGG has seen a decrease in hedge fund interest lately. There were 24 hedge funds in our database with GGG positions at the end of the previous quarter. Our calculations also showed that GGG 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.
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_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the key hedge fund action regarding Graco Inc. (NYSE:GGG).
How have hedgies been trading Graco Inc. (NYSE:GGG)?
At Q3's end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in GGG a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, GAMCO Investors held the most valuable stake in Graco Inc. (NYSE:GGG), which was worth $88.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $24.6 million worth of shares. D E Shaw, GLG Partners, and Royce & Associates 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 GAMCO Investors allocated the biggest weight to Graco Inc. (NYSE:GGG), around 0.74% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, earmarking 0.29 percent of its 13F equity portfolio to GGG.
Because Graco Inc. (NYSE:GGG) has faced bearish sentiment from hedge fund managers, it's safe to say that there were a few fund managers who were dropping their positions entirely in the third quarter. At the top of the heap, Michael Hintze's CQS Cayman LP cut the biggest stake of the 750 funds monitored by Insider Monkey, worth an estimated $2.9 million in stock. Nick Niell's fund, Arrowgrass Capital Partners, also dumped its stock, about $2 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 5 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to Graco Inc. (NYSE:GGG). We will take a look at Hyatt Hotels Corporation (NYSE:H), Fortune Brands Home & Security Inc (NYSE:FBHS), AMERCO (NASDAQ:UHAL), and Bausch Health Companies Inc. (NYSE:BHC). This group of stocks' market valuations are similar to GGG's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position H,28,932324,5 FBHS,33,555866,2 UHAL,10,400813,-5 BHC,32,1808152,1 Average,25.75,924289,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $924 million. That figure was $187 million in GGG's case. Fortune Brands Home & Security Inc (NYSE:FBHS) is the most popular stock in this table. On the other hand AMERCO (NASDAQ:UHAL) is the least popular one with only 10 bullish hedge fund positions. Graco Inc. (NYSE:GGG) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GGG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GGG investors were disappointed as the stock returned 5.3% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.