Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Guardant Health, Inc. (NASDAQ:GH).
Is Guardant Health, Inc. (NASDAQ:GH) the right pick for your portfolio? Hedge funds are buying. The number of bullish hedge fund positions inched up by 5 lately. Our calculations also showed that GH isn't among the 30 most popular stocks among hedge funds (see the video below). GH was in 19 hedge funds' portfolios at the end of June. There were 14 hedge funds in our database with GH positions at the end of the previous quarter. 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to go over the fresh hedge fund action surrounding Guardant Health, Inc. (NASDAQ:GH).
What does smart money think about Guardant Health, Inc. (NASDAQ:GH)?
Heading into the third quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 36% from the first quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in GH 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, Coatue Management was the largest shareholder of Guardant Health, Inc. (NASDAQ:GH), with a stake worth $103.3 million reported as of the end of March. Trailing Coatue Management was Hitchwood Capital Management, which amassed a stake valued at $51.4 million. Millennium Management, Rock Springs Capital Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Now, some big names were leading the bulls' herd. Coatue Management, managed by Philippe Laffont, created the largest position in Guardant Health, Inc. (NASDAQ:GH). Coatue Management had $103.3 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $16.8 million investment in the stock during the quarter. The following funds were also among the new GH investors: Mark Wolfson and Jamie Alexander's Jasper Ridge Partners, Matthew Hulsizer's PEAK6 Capital Management, and Matthew Hulsizer's PEAK6 Capital Management.
Let's now review hedge fund activity in other stocks similar to Guardant Health, Inc. (NASDAQ:GH). These stocks are American Homes 4 Rent (NYSE:AMH), Galapagos NV (NASDAQ:GLPG), Albemarle Corporation (NYSE:ALB), and FLIR Systems, Inc. (NASDAQ:FLIR). This group of stocks' market valuations resemble GH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMH,25,454005,6 GLPG,14,97279,-2 ALB,18,202553,-7 FLIR,20,434610,-12 Average,19.25,297112,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $297 million. That figure was $226 million in GH's case. American Homes 4 Rent (NYSE:AMH) is the most popular stock in this table. On the other hand Galapagos NV (NASDAQ:GLPG) is the least popular one with only 14 bullish hedge fund positions. Guardant Health, Inc. (NASDAQ:GH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately GH wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GH investors were disappointed as the stock returned -26.1% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.