While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Gladstone Land Corporation (NASDAQ:LAND).
Hedge fund interest in Gladstone Land Corporation (NASDAQ:LAND) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare LAND to other stocks including Westwood Holdings Group, Inc. (NYSE:WHG), Biglari Holdings Inc (NYSE:BH), and Cumulus Media Inc (NASDAQ:CMLS) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_189632" align="aligncenter" width="450"] David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's take a glance at the fresh hedge fund action regarding Gladstone Land Corporation (NASDAQ:LAND).
How have hedgies been trading Gladstone Land Corporation (NASDAQ:LAND)?
At Q3's end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LAND over the last 17 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Gladstone Land Corporation (NASDAQ:LAND) was held by Renaissance Technologies, which reported holding $1.7 million worth of stock at the end of September. It was followed by Winton Capital Management with a $1.6 million position. Other investors bullish on the company included Marshall Wace, Citadel Investment Group, and Horizon Asset Management. In terms of the portfolio weights assigned to each position Horizon Asset Management allocated the biggest weight to Gladstone Land Corporation (NASDAQ:LAND), around 0.02% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to LAND.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Gladstone Land Corporation (NASDAQ:LAND) but similarly valued. These stocks are Westwood Holdings Group, Inc. (NYSE:WHG), Biglari Holdings Inc (NYSE:BH), Cumulus Media Inc (NASDAQ:CMLS), and Netfin Acquisition Corp. (NASDAQ:NFIN). All of these stocks' market caps resemble LAND's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WHG,10,43281,-1 BH,10,37782,0 CMLS,12,85391,3 NFIN,11,42194,11 Average,10.75,52162,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $6 million in LAND's case. Cumulus Media Inc (NASDAQ:CMLS) is the most popular stock in this table. On the other hand Westwood Holdings Group, Inc. (NYSE:WHG) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Gladstone Land Corporation (NASDAQ:LAND) is even less popular than WHG. 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. A small number of hedge funds were also right about betting on LAND, though not to the same extent, as the stock returned 7.4% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.