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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded General Finance Corporation (NASDAQ:GFN) based on those filings.
Is General Finance Corporation (NASDAQ:GFN) ready to rally soon? The smart money is reducing their bets on the stock. The number of bullish hedge fund bets were cut by 2 recently. Our calculations also showed that GFN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by more than 44 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. 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.
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John Overdeck of Two Sigma Advisors[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital's Michael Castor expects to double. 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. Now we're going to take a gander at the latest hedge fund action regarding General Finance Corporation (NASDAQ:GFN).
What have hedge funds been doing with General Finance Corporation (NASDAQ:GFN)?
Heading into the second quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -40% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in GFN a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of General Finance Corporation (NASDAQ:GFN), with a stake worth $4.3 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $2.8 million. Two Sigma Advisors was 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 Royce & Associates allocated the biggest weight to General Finance Corporation (NASDAQ:GFN), around 0.04% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.0042 percent of its 13F equity portfolio to GFN.
Judging by the fact that General Finance Corporation (NASDAQ:GFN) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds that decided to sell off their full holdings last quarter. It's worth mentioning that Israel Englander's Millennium Management dumped the biggest investment of the "upper crust" of funds followed by Insider Monkey, worth an estimated $0.2 million in stock. Ken Griffin's fund, Citadel Investment Group, also said goodbye to its stock, about $0.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's check out hedge fund activity in other stocks similar to General Finance Corporation (NASDAQ:GFN). These stocks are ChromaDex Corporation (NASDAQ:CDXC), Akoustis Technologies, Inc. (NASDAQ:AKTS), Gannett Co., Inc. (NYSE:GCI), and Protective Insurance Corporation (NASDAQ:PTVCB). This group of stocks' market valuations are similar to GFN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CDXC,3,419,2 AKTS,3,7621,-3 GCI,13,30106,-9 PTVCB,5,12042,-3 Average,6,12547,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $7 million in GFN's case. Gannett Co., Inc. (NYSE:GCI) is the most popular stock in this table. On the other hand ChromaDex Corporation (NASDAQ:CDXC) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks General Finance Corporation (NASDAQ:GFN) is even less popular than CDXC. Hedge funds dodged a bullet by taking a bearish stance towards GFN. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but managed to beat the market by 15.6 percentage points. Unfortunately GFN wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); GFN investors were disappointed as the stock returned -3% during the second quarter (through May 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.