It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. 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. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 Griffon Corporation (NYSE:GFF).
Griffon Corporation (NYSE:GFF) was in 13 hedge funds' portfolios at the end of September. GFF has seen an increase in support from the world's most elite money managers recently. There were 9 hedge funds in our database with GFF holdings at the end of the previous quarter. Our calculations also showed that GFF 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.
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 take a glance at the recent hedge fund action regarding Griffon Corporation (NYSE:GFF).
What does smart money think about Griffon Corporation (NYSE:GFF)?
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 44% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GFF over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Griffon Corporation (NYSE:GFF) was held by GAMCO Investors, which reported holding $103.4 million worth of stock at the end of September. It was followed by Royce & Associates with a $14 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and PEAK6 Capital Management. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to Griffon Corporation (NYSE:GFF), around 0.86% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to GFF.
Now, some big names were breaking ground themselves. PEAK6 Capital Management, managed by Matthew Hulsizer, assembled the most outsized call position in Griffon Corporation (NYSE:GFF). PEAK6 Capital Management had $2.4 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also initiated a $1.4 million position during the quarter. The other funds with brand new GFF positions are Mark Coe's Intrinsic Edge Capital, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Ken Griffin's Citadel Investment Group.
Let's now take a look at hedge fund activity in other stocks similar to Griffon Corporation (NYSE:GFF). We will take a look at Abercrombie & Fitch Co. (NYSE:ANF), Bain Capital Specialty Finance, Inc. (NYSE:BCSF), Lantheus Holdings Inc (NASDAQ:LNTH), and Greenbrier Companies Inc (NYSE:GBX). All of these stocks' market caps match GFF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANF,19,64845,-7 BCSF,7,38318,2 LNTH,13,101269,-2 GBX,8,21653,-6 Average,11.75,56521,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $131 million in GFF's case. Abercrombie & Fitch Co. (NYSE:ANF) is the most popular stock in this table. On the other hand Bain Capital Specialty Finance, Inc. (NYSE:BCSF) is the least popular one with only 7 bullish hedge fund positions. Griffon Corporation (NYSE:GFF) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GFF wasn't nearly as popular as these 20 stocks and hedge funds that were betting on GFF were disappointed as the stock returned 1.5% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.