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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about GCP Applied Technologies Inc. (NYSE:GCP).
Is GCP Applied Technologies Inc. (NYSE:GCP) a safe investment right now? Hedge funds are turning less bullish. The number of bullish hedge fund positions were trimmed by 2 lately. Our calculations also showed that GCP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
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Joel Greenblatt of Gotham Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind we're going to take a peek at the fresh hedge fund action regarding GCP Applied Technologies Inc. (NYSE:GCP).
How have hedgies been trading GCP Applied Technologies Inc. (NYSE:GCP)?
At Q4's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in GCP a year ago. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, Starboard Value LP held the most valuable stake in GCP Applied Technologies Inc. (NYSE:GCP), which was worth $120.9 million at the end of the third quarter. On the second spot was 40 North Management which amassed $116.1 million worth of shares. GAMCO Investors, Adage Capital Management, and Millennium Management 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 40 North Management allocated the biggest weight to GCP Applied Technologies Inc. (NYSE:GCP), around 8.2% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, dishing out 3.5 percent of its 13F equity portfolio to GCP.
Judging by the fact that GCP Applied Technologies Inc. (NYSE:GCP) has faced falling interest from the entirety of the hedge funds we track, we can see that there exists a select few hedgies who sold off their positions entirely heading into Q4. At the top of the heap, Paul Tudor Jones's Tudor Investment Corp said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, totaling an estimated $0.8 million in call options. Matthew Hulsizer's fund, PEAK6 Capital Management, also said goodbye to its call options, about $0.7 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to GCP Applied Technologies Inc. (NYSE:GCP). We will take a look at CNX Resources Corporation (NYSE:CNX), Fanhua Inc. (NASDAQ:FANH), PRA Group, Inc. (NASDAQ:PRAA), and Rush Enterprises, Inc. (NASDAQ:RUSHB). This group of stocks' market caps resemble GCP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNX,18,584938,-2 FANH,7,12505,-1 PRAA,12,49091,1 RUSHB,4,41101,1 Average,10.25,171909,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $172 million. That figure was $401 million in GCP's case. CNX Resources Corporation (NYSE:CNX) is the most popular stock in this table. On the other hand Rush Enterprises, Inc. (NASDAQ:RUSHB) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks GCP Applied Technologies Inc. (NYSE:GCP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately GCP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on GCP were disappointed as the stock returned -27.5% during the three months of 2020 (through April 6th) 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 most of these stocks already outperformed the market in 2020.
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.