Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 4 percentage points through September 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Green Dot Corporation (NYSE:GDOT) was in 18 hedge funds' portfolios at the end of June. GDOT investors should be aware of a decrease in support from the world's most elite money managers in recent months. There were 27 hedge funds in our database with GDOT holdings at the end of the previous quarter. Our calculations also showed that GDOT isn't among the 30 most popular stocks among hedge funds (view video below). 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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a 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 take a glance at the key hedge fund action encompassing Green Dot Corporation (NYSE:GDOT).
How are hedge funds trading Green Dot Corporation (NYSE:GDOT)?
Heading into the third quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in GDOT 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.
More specifically, Coatue Management was the largest shareholder of Green Dot Corporation (NYSE:GDOT), with a stake worth $61.2 million reported as of the end of March. Trailing Coatue Management was Citadel Investment Group, which amassed a stake valued at $35.5 million. D E Shaw, Two Sigma Advisors, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because Green Dot Corporation (NYSE:GDOT) has experienced falling interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few money managers who sold off their full holdings in the second quarter. At the top of the heap, Principal Global Investors's Columbus Circle Investors dumped the biggest position of all the hedgies followed by Insider Monkey, comprising about $13.2 million in stock. Anand Parekh's fund, Alyeska Investment Group, also said goodbye to its stock, about $5.9 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 9 funds in the second quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Green Dot Corporation (NYSE:GDOT) but similarly valued. These stocks are John Wiley & Sons Inc (NYSE:JW), Brandywine Realty Trust (NYSE:BDN), National General Holdings Corp (NASDAQ:NGHC), and Brady Corporation (NYSE:BRC). This group of stocks' market values resemble GDOT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JW,17,109505,0 BDN,14,92127,-1 NGHC,18,225830,0 BRC,13,188953,-2 Average,15.5,154104,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $154 million. That figure was $243 million in GDOT's case. National General Holdings Corp (NASDAQ:NGHC) is the most popular stock in this table. On the other hand Brady Corporation (NYSE:BRC) is the least popular one with only 13 bullish hedge fund positions. Green Dot Corporation (NYSE:GDOT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 GDOT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on GDOT were disappointed as the stock returned -48.4% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.