Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don't publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That's why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) from the perspective of those elite funds.
Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) investors should pay attention to an increase in hedge fund interest of late. GLDD was in 18 hedge funds' portfolios at the end of March. There were 14 hedge funds in our database with GLDD positions at the end of the previous quarter. Our calculations also showed that GLDD isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's take a glance at the recent hedge fund action regarding Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD).
What does the smart money think about Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD)?
At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GLDD over the last 15 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Nelson Obus's Wynnefield Capital has the biggest position in Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD), worth close to $11.9 million, comprising 5.6% of its total 13F portfolio. Sitting at the No. 2 spot is D E Shaw, managed by D. E. Shaw, which holds a $10.8 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish encompass David P. Cohen's Minerva Advisors, Phil Frohlich's Prescott Group Capital Management and Israel Englander's Millennium Management.
Now, specific money managers have been driving this bullishness. Minerva Advisors, managed by David P. Cohen, created the biggest position in Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD). Minerva Advisors had $9.9 million invested in the company at the end of the quarter. Cliff Asness's AQR Capital Management also initiated a $4.3 million position during the quarter. The other funds with new positions in the stock are Ken Griffin's Citadel Investment Group, Noam Gottesman's GLG Partners, and Matthew Hulsizer's PEAK6 Capital Management.
Let's go over hedge fund activity in other stocks similar to Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD). We will take a look at Forum Energy Technologies Inc (NYSE:FET), Bank of Marin Bancorp (NASDAQ:BMRC), Stemline Therapeutics Inc (NASDAQ:STML), and HarborOne Bancorp, Inc. (NASDAQ:HONE). All of these stocks' market caps resemble GLDD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FET,16,48611,5 BMRC,7,18453,1 STML,20,188610,5 HONE,4,7730,0 Average,11.75,65851,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $70 million in GLDD's case. Stemline Therapeutics Inc (NASDAQ:STML) is the most popular stock in this table. On the other hand HarborOne Bancorp, Inc. (NASDAQ:HONE) is the least popular one with only 4 bullish hedge fund positions. Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on GLDD as the stock returned 20.9% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.