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 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Garrett Motion Inc. (NYSE:GTX) and see how the stock is affected by the recent hedge fund activity.
Is Garrett Motion Inc. (NYSE:GTX) a buy, sell, or hold? Money managers are in an optimistic mood. The number of long hedge fund bets increased by 4 in recent months. Our calculations also showed that GTX isn't among the 30 most popular stocks among hedge funds (see the video below). GTX was in 23 hedge funds' portfolios at the end of the second quarter of 2019. There were 19 hedge funds in our database with GTX holdings 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' 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, 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. Let's take a look at the key hedge fund action surrounding Garrett Motion Inc. (NYSE:GTX).
What have hedge funds been doing with Garrett Motion Inc. (NYSE:GTX)?
Heading into the third quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the first quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in GTX a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Sessa Capital was the largest shareholder of Garrett Motion Inc. (NYSE:GTX), with a stake worth $98.5 million reported as of the end of March. Trailing Sessa Capital was Deccan Value Advisors, which amassed a stake valued at $93.9 million. Newtyn Management, Hawk Ridge Management, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
Now, specific money managers were breaking ground themselves. Renaissance Technologies assembled the largest position in Garrett Motion Inc. (NYSE:GTX). Renaissance Technologies had $8.9 million invested in the company at the end of the quarter. Mark Travis's Intrepid Capital Management also initiated a $6.3 million position during the quarter. The other funds with new positions in the stock are Steve Cohen's Point72 Asset Management, Dmitry Balyasny's Balyasny Asset Management, and David Harding's Winton Capital Management.
Let's now review hedge fund activity in other stocks similar to Garrett Motion Inc. (NYSE:GTX). These stocks are New Mountain Finance Corporation (NYSE:NMFC), National Bank Holdings Corporation (NYSE:NBHC), Select Energy Services, Inc. (NYSE:WTTR), and Criteo SA (NASDAQ:CRTO). This group of stocks' market values are closest to GTX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NMFC,11,35819,2 NBHC,10,90981,2 WTTR,11,41118,-4 CRTO,9,150438,0 Average,10.25,79589,0 [/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 $80 million. That figure was $291 million in GTX's case. New Mountain Finance Corporation (NYSE:NMFC) is the most popular stock in this table. On the other hand Criteo SA (NASDAQ:CRTO) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Garrett Motion Inc. (NYSE:GTX) is more popular among hedge funds. 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 GTX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on GTX were disappointed as the stock returned -35.1% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.