We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Granite Point Mortgage Trust Inc. (NYSE:GPMT).
Granite Point Mortgage Trust Inc. (NYSE:GPMT) was in 6 hedge funds' portfolios at the end of September. GPMT has seen a decrease in activity from the world's largest hedge funds in recent months. There were 9 hedge funds in our database with GPMT holdings at the end of the previous quarter. Our calculations also showed that GPMT 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_256989" align="aligncenter" width="450"] Dmitry Balyasny of Balyasny Asset Managemnet[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's review the new hedge fund action encompassing Granite Point Mortgage Trust Inc. (NYSE:GPMT).
What have hedge funds been doing with Granite Point Mortgage Trust Inc. (NYSE:GPMT)?
At Q3's end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GPMT over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, David Harding's Winton Capital Management has the largest position in Granite Point Mortgage Trust Inc. (NYSE:GPMT), worth close to $6.2 million, amounting to 0.1% of its total 13F portfolio. On Winton Capital Management's heels is Renaissance Technologies holding a $5.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish consist of David E. Shaw's D E Shaw, Dmitry Balyasny's Balyasny Asset Management and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to Granite Point Mortgage Trust Inc. (NYSE:GPMT), around 0.07% of its 13F portfolio. Omega Advisors is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to GPMT.
Seeing as Granite Point Mortgage Trust Inc. (NYSE:GPMT) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there were a few hedgies who sold off their positions entirely last quarter. Intriguingly, Charles Clough's Clough Capital Partners dropped the largest investment of the 750 funds tracked by Insider Monkey, comprising an estimated $9.8 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund dumped about $0.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 3 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Granite Point Mortgage Trust Inc. (NYSE:GPMT). These stocks are Chase Corporation (NYSE:CCF), The St. Joe Company (NYSE:JOE), Encore Capital Group, Inc. (NASDAQ:ECPG), and Apogee Enterprises, Inc. (NASDAQ:APOG). All of these stocks' market caps are closest to GPMT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCF,7,86633,-1 JOE,9,503471,-3 ECPG,10,65147,2 APOG,12,130115,0 Average,9.5,196342,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $13 million in GPMT's case. Apogee Enterprises, Inc. (NASDAQ:APOG) is the most popular stock in this table. On the other hand Chase Corporation (NYSE:CCF) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Granite Point Mortgage Trust Inc. (NYSE:GPMT) is even less popular than CCF. Hedge funds dodged a bullet by taking a bearish stance towards GPMT. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GPMT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); GPMT investors were disappointed as the stock returned -0.8% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.