Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Genpact Limited (NYSE:G) has seen an increase in hedge fund interest recently. G was in 35 hedge funds' portfolios at the end of the third quarter of 2019. There were 26 hedge funds in our database with G positions at the end of the previous quarter. Our calculations also showed that G isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_189632" align="aligncenter" width="450"] David Harding of Winton Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the key hedge fund action encompassing Genpact Limited (NYSE:G).
How have hedgies been trading Genpact Limited (NYSE:G)?
At Q3's end, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in G a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the largest position in Genpact Limited (NYSE:G). Arrowstreet Capital has a $158.6 million position in the stock, comprising 0.4% of its 13F portfolio. The second largest stake is held by D E Shaw, managed by David E. Shaw, which holds a $155.8 million position; 0.2% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism contain James Parsons's Junto Capital Management, Israel Englander's Millennium Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Genpact Limited (NYSE:G), around 11.34% of its portfolio. Junto Capital Management is also relatively very bullish on the stock, setting aside 4.94 percent of its 13F equity portfolio to G.
Consequently, key hedge funds have jumped into Genpact Limited (NYSE:G) headfirst. Echo Street Capital Management, managed by Greg Poole, initiated the most valuable position in Genpact Limited (NYSE:G). Echo Street Capital Management had $25.5 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also made a $22.5 million investment in the stock during the quarter. The other funds with brand new G positions are Phill Gross and Robert Atchinson's Adage Capital Management, Mark Coe's Intrinsic Edge Capital, and David Harding's Winton Capital Management.
Let's also examine hedge fund activity in other stocks similar to Genpact Limited (NYSE:G). These stocks are China Southern Airlines Co Ltd (NYSE:ZNH), Albemarle Corporation (NYSE:ALB), Ralph Lauren Corporation (NYSE:RL), and Cabot Oil & Gas Corporation (NYSE:COG). This group of stocks' market valuations are similar to G's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZNH,2,12318,1 ALB,17,148538,-1 RL,31,842866,-4 COG,38,667348,1 Average,22,417768,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $418 million. That figure was $862 million in G's case. Cabot Oil & Gas Corporation (NYSE:COG) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 2 bullish hedge fund positions. Genpact Limited (NYSE:G) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately G wasn't nearly as popular as these 20 stocks and hedge funds that were betting on G were disappointed as the stock returned 5% during the fourth quarter (through the end of November) 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.