You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Is GreenSky, Inc. (NASDAQ:GSKY) an outstanding investment today? The best stock pickers are getting less optimistic. The number of long hedge fund positions decreased by 5 in recent months. Our calculations also showed that gsky isn't among the 30 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 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 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 our short portfolio.
[caption id="attachment_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/caption]
We're going to take a look at the recent hedge fund action encompassing GreenSky, Inc. (NASDAQ:GSKY).
How are hedge funds trading GreenSky, Inc. (NASDAQ:GSKY)?
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in GSKY a year ago. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Paul Marshall and Ian Wace's Marshall Wace LLP has the number one position in GreenSky, Inc. (NASDAQ:GSKY), worth close to $14.1 million, comprising 0.1% of its total 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $12.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism encompass D. E. Shaw's D E Shaw, John Overdeck and David Siegel's Two Sigma Advisors and Paul Reeder and Edward Shapiro's PAR Capital Management.
Seeing as GreenSky, Inc. (NASDAQ:GSKY) has witnessed bearish sentiment from hedge fund managers, we can see that there was a specific group of fund managers that decided to sell off their positions entirely heading into Q3. Intriguingly, Curtis Schenker and Craig Effron's Scoggin cut the largest position of the 700 funds watched by Insider Monkey, comprising an estimated $3.1 million in stock, and Joseph A. Jolson's Harvest Capital Strategies was right behind this move, as the fund dropped about $2.9 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 5 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to GreenSky, Inc. (NASDAQ:GSKY). These stocks are Albany International Corp. (NYSE:AIN), Oi SA (NYSE:OIBR), Acacia Communications, Inc. (NASDAQ:ACIA), and CoreCivic, Inc. (NYSE:CXW). This group of stocks' market valuations resemble GSKY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AIN,16,87031,5 OIBR,21,826627,0 ACIA,31,319611,11 CXW,14,145281,-7 Average,20.5,344638,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $345 million. That figure was $69 million in GSKY's case. Acacia Communications, Inc. (NASDAQ:ACIA) is the most popular stock in this table. On the other hand CoreCivic, Inc. (NYSE:CXW) is the least popular one with only 14 bullish hedge fund positions. GreenSky, Inc. (NASDAQ:GSKY) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately GSKY wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GSKY investors were disappointed as the stock returned -0.4% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.