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Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Generac Holdings Inc. (NYSE:GNRC) was in 30 hedge funds' portfolios at the end of the third quarter of 2019. GNRC shareholders have witnessed an increase in enthusiasm from smart money of late. There were 25 hedge funds in our database with GNRC holdings at the end of the previous quarter. Our calculations also showed that GNRC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
In the eyes of most investors, hedge funds are viewed as underperforming, old investment vehicles of yesteryear. While there are more than 8000 funds in operation at present, We hone in on the elite of this group, around 750 funds. It is estimated that this group of investors orchestrate most of the smart money's total capital, and by following their matchless picks, Insider Monkey has identified a few investment strategies that have historically defeated the S&P 500 index. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
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Chuck Royce of Royce & Associates[/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 we're going to take a glance at the latest hedge fund action surrounding Generac Holdings Inc. (NYSE:GNRC).
How are hedge funds trading Generac Holdings Inc. (NYSE:GNRC)?
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GNRC over the last 17 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Impax Asset Management was the largest shareholder of Generac Holdings Inc. (NYSE:GNRC), with a stake worth $99.5 million reported as of the end of September. Trailing Impax Asset Management was Alyeska Investment Group, which amassed a stake valued at $49.9 million. Ariel Investments, Arrowstreet Capital, and Royce & Associates were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position G2 Investment Partners Management allocated the biggest weight to Generac Holdings Inc. (NYSE:GNRC), around 1.39% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, designating 1.3 percent of its 13F equity portfolio to GNRC.
As industrywide interest jumped, key hedge funds were leading the bulls' herd. Alyeska Investment Group, managed by Anand Parekh, established the most outsized position in Generac Holdings Inc. (NYSE:GNRC). Alyeska Investment Group had $49.9 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $7 million investment in the stock during the quarter. The following funds were also among the new GNRC investors: Josh Goldberg's G2 Investment Partners Management, Ira Unschuld's Brant Point Investment Management, and Ira Unschuld's Brant Point Investment Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Generac Holdings Inc. (NYSE:GNRC) but similarly valued. These stocks are Teladoc Inc (NYSE:TDOC), JetBlue Airways Corporation (NASDAQ:JBLU), Cimarex Energy Co (NYSE:XEC), and Ultrapar Participacoes SA (NYSE:UGP). This group of stocks' market values are similar to GNRC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TDOC,17,102048,-1 JBLU,23,646872,-4 XEC,31,926221,4 UGP,5,45121,-2 Average,19,430066,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $430 million. That figure was $290 million in GNRC's case. Cimarex Energy Co (NYSE:XEC) is the most popular stock in this table. On the other hand Ultrapar Participacoes SA (NYSE:UGP) is the least popular one with only 5 bullish hedge fund positions. Generac Holdings Inc. (NYSE:GNRC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on GNRC as the stock returned 103.3% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.