Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the first 6 weeks of the fourth quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards GTT Communications Inc (NYSE:GTT) to find out whether it was one of their high conviction long-term ideas.
Is GTT Communications Inc (NYSE:GTT) an excellent stock to buy now? The smart money is reducing their bets on the stock. The number of bullish hedge fund bets fell by 2 lately. Our calculations also showed that gtt isn't among the 30 most popular stocks among hedge funds. GTT was in 14 hedge funds' portfolios at the end of September. There were 16 hedge funds in our database with GTT holdings at the end of the previous quarter.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 18 percentage points since May 2014 through December 3, 2018 (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.
We're going to view the key hedge fund action encompassing GTT Communications Inc (NYSE:GTT).
What have hedge funds been doing with GTT Communications Inc (NYSE:GTT)?
At Q3's end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GTT over the last 13 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Cove Street Capital was the largest shareholder of GTT Communications Inc (NYSE:GTT), with a stake worth $34.7 million reported as of the end of September. Trailing Cove Street Capital was Trafelet Capital, which amassed a stake valued at $31.5 million. Cheyne Capital, Spitfire Capital, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Since GTT Communications Inc (NYSE:GTT) has faced declining sentiment from hedge fund managers, we can see that there were a few funds that slashed their entire stakes heading into Q3. Interestingly, Philip Hempleman's Ardsley Partners said goodbye to the biggest investment of the "upper crust" of funds watched by Insider Monkey, worth close to $6.7 million in stock. Joel Greenblatt's fund, Gotham Asset Management, also said goodbye to its stock, about $4.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds heading into Q3.
Let's check out hedge fund activity in other stocks similar to GTT Communications Inc (NYSE:GTT). We will take a look at Novanta Inc. (NASDAQ:NOVT), CenterState Bank Corporation (NASDAQ:CSFL), Cirrus Logic, Inc. (NASDAQ:CRUS), and Intrexon Corp (NASDAQ:XON). This group of stocks' market values are closest to GTT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOVT,17,109337,1 CSFL,19,128118,0 CRUS,21,259087,1 XON,9,99237,0 Average,16.5,148945,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $149 million. That figure was $150 million in GTT's case. Cirrus Logic, Inc. (NASDAQ:CRUS) is the most popular stock in this table. On the other hand Intrexon Corp (NASDAQ:XON) is the least popular one with only 9 bullish hedge fund positions. GTT Communications Inc (NYSE:GTT) 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. In this regard CRUS might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.