We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Green Brick Partners Inc (NASDAQ:GRBK) and determine whether hedge funds skillfully traded this stock.
Is Green Brick Partners Inc (NASDAQ:GRBK) the right pick for your portfolio? Investors who are in the know were in a bullish mood. The number of bullish hedge fund bets moved up by 2 in recent months. Green Brick Partners Inc (NASDAQ:GRBK) was in 21 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that GRBK isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
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 58 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.
David Einhorn of Greenlight Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let's check out the new hedge fund action regarding Green Brick Partners Inc (NASDAQ:GRBK).
How are hedge funds trading Green Brick Partners Inc (NASDAQ:GRBK)?
At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GRBK over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Green Brick Partners Inc (NASDAQ:GRBK) was held by Greenlight Capital, which reported holding $285.8 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $10 million position. Other investors bullish on the company included Birch Run Capital, Stadium Capital Management, and Ariel Investments. In terms of the portfolio weights assigned to each position Greenlight Capital allocated the biggest weight to Green Brick Partners Inc (NASDAQ:GRBK), around 30.99% of its 13F portfolio. AWH Capital is also relatively very bullish on the stock, designating 7.21 percent of its 13F equity portfolio to GRBK.
As one would reasonably expect, key money managers were breaking ground themselves. ExodusPoint Capital, managed by Michael Gelband, created the most outsized position in Green Brick Partners Inc (NASDAQ:GRBK). ExodusPoint Capital had $0.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $0.4 million investment in the stock during the quarter. The other funds with brand new GRBK positions are Noam Gottesman's GLG Partners and John Overdeck and David Siegel's Two Sigma Advisors.
Let's now take a look at hedge fund activity in other stocks similar to Green Brick Partners Inc (NASDAQ:GRBK). These stocks are Dillard's, Inc. (NYSE:DDS), Atreca, Inc. (NASDAQ:BCEL), Clearwater Paper Corp (NYSE:CLW), Nordic American Tankers Ltd (NYSE:NAT), Matthews International Corp (NASDAQ:MATW), Plantronics, Inc. (NYSE:PLT), and CNX Midstream Partners LP (NYSE:CNXM). This group of stocks' market caps resemble GRBK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DDS,17,42116,4 BCEL,9,151048,1 CLW,14,57751,9 NAT,5,6514,-7 MATW,18,49822,9 PLT,10,17738,4 CNXM,5,8608,3 Average,11.1,47657,3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.1 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $333 million in GRBK's case. Matthews International Corp (NASDAQ:MATW) is the most popular stock in this table. On the other hand Nordic American Tankers Ltd (NYSE:NAT) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Green Brick Partners Inc (NASDAQ:GRBK) is more popular among hedge funds. Our overall hedge fund sentiment score for GRBK is 87. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on GRBK as the stock returned 35.9% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.