We are still in an overall bull market and many stocks that smart money investors were piling into surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Hedge funds' top 3 stock picks returned 39.1% this year and beat the S&P 500 ETFs by nearly 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Global Payments Inc (NYSE:GPN).
Is Global Payments Inc (NYSE:GPN) a buy right now? The smart money is getting more optimistic. The number of long hedge fund positions improved by 27 lately. Our calculations also showed that GPN isn't among the 30 most popular stocks among hedge funds. GPN was in 64 hedge funds' portfolios at the end of September. There were 37 hedge funds in our database with GPN positions at the end of the previous quarter.
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 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 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.
[caption id="attachment_30602" align="aligncenter" width="600"] Philippe Laffont of Coatue 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. We're going to go over the latest hedge fund action regarding Global Payments Inc (NYSE:GPN).
How are hedge funds trading Global Payments Inc (NYSE:GPN)?
Heading into the fourth quarter of 2019, a total of 64 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 73% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GPN over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Philippe Laffont's Coatue Management has the number one position in Global Payments Inc (NYSE:GPN), worth close to $649.1 million, amounting to 5.6% of its total 13F portfolio. The second largest stake is held by Lone Pine Capital holding a $581.2 million position; 3.4% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions comprise Steve Cohen's Point72 Asset Management, Aaron Cowen's Suvretta Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Joho Capital allocated the biggest weight to Global Payments Inc (NYSE:GPN), around 17.24% of its portfolio. Strycker View Capital is also relatively very bullish on the stock, designating 9.83 percent of its 13F equity portfolio to GPN.
Consequently, specific money managers were leading the bulls' herd. Lone Pine Capital, managed by Stephen Mandel, initiated the most outsized position in Global Payments Inc (NYSE:GPN). Lone Pine Capital had $581.2 million invested in the company at the end of the quarter. Aaron Cowen's Suvretta Capital Management also initiated a $193 million position during the quarter. The following funds were also among the new GPN investors: Larry Robbins's Glenview Capital, Brandon Haley's Holocene Advisors, and Andrew Immerman and Jeremy Schiffman's Palestra Capital Management.
Let's now take a look at hedge fund activity in other stocks similar to Global Payments Inc (NYSE:GPN). These stocks are ServiceNow Inc (NYSE:NOW), Norfolk Southern Corp. (NYSE:NSC), Prudential Public Limited Company (NYSE:PUK), and Micron Technology, Inc. (NASDAQ:MU). This group of stocks' market valuations resemble GPN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOW,86,5263766,9 NSC,46,1947473,-8 PUK,11,58421,6 MU,67,3620548,5 Average,52.5,2722552,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 52.5 hedge funds with bullish positions and the average amount invested in these stocks was $2723 million. That figure was $3525 million in GPN's case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE:PUK) is the least popular one with only 11 bullish hedge fund positions. Global Payments Inc (NYSE:GPN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on GPN as the stock returned 12.4% during the fourth quarter (through 11/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.