Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about General Finance Corporation (NASDAQ:GFN).
General Finance Corporation (NASDAQ:GFN) has experienced a decrease in support from the world's most elite money managers of late. Our calculations also showed that GFN isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 40 percentage points since May 2014 through May 30, 2019 (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.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let's take a gander at the new hedge fund action surrounding General Finance Corporation (NASDAQ:GFN).
What have hedge funds been doing with General Finance Corporation (NASDAQ:GFN)?
At Q2's end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GFN over the last 16 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in General Finance Corporation (NASDAQ:GFN) was held by Renaissance Technologies, which reported holding $6.5 million worth of stock at the end of March. It was followed by Royce & Associates with a $0.7 million position. Other investors bullish on the company included Two Sigma Advisors, Fondren Management, and Millennium Management.
Due to the fact that General Finance Corporation (NASDAQ:GFN) has experienced declining sentiment from hedge fund managers, it's safe to say that there exists a select few money managers who were dropping their full holdings heading into Q3. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the biggest position of all the hedgies monitored by Insider Monkey, valued at about $0.8 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also cut its stock, about $0.1 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds heading into Q3.
Let's go over hedge fund activity in other stocks similar to General Finance Corporation (NASDAQ:GFN). These stocks are Evelo Biosciences, Inc. (NASDAQ:EVLO), LCNB Corp. (NASDAQ:LCNB), Northrim BanCorp, Inc. (NASDAQ:NRIM), and Misonix, Inc. (NASDAQ:MSON). This group of stocks' market caps match GFN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVLO,2,8054,0 LCNB,1,3741,-1 NRIM,8,24576,1 MSON,3,8475,-1 Average,3.5,11212,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $8 million in GFN's case. Northrim BanCorp, Inc. (NASDAQ:NRIM) is the most popular stock in this table. On the other hand LCNB Corp. (NASDAQ:LCNB) is the least popular one with only 1 bullish hedge fund positions. General Finance Corporation (NASDAQ:GFN) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on GFN, though not to the same extent, as the stock returned 5.6% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.