The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Gates Industrial Corporation plc (NYSE:GTES) for your portfolio? We'll look to this invaluable collective wisdom for the answer.
Is Gates Industrial Corporation plc (NYSE:GTES) the right pick for your portfolio? The smart money is buying. The number of bullish hedge fund bets rose by 1 lately. Our calculations also showed that GTES isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). GTES was in 14 hedge funds' portfolios at the end of the third quarter of 2019. There were 13 hedge funds in our database with GTES 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.
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 Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the key hedge fund action encompassing Gates Industrial Corporation plc (NYSE:GTES).
Hedge fund activity in Gates Industrial Corporation plc (NYSE:GTES)
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in GTES a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Adage Capital Management was the largest shareholder of Gates Industrial Corporation plc (NYSE:GTES), with a stake worth $41.9 million reported as of the end of September. Trailing Adage Capital Management was AQR Capital Management, which amassed a stake valued at $2 million. Millennium Management, Islet Management, and Winton Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Islet Management allocated the biggest weight to Gates Industrial Corporation plc (NYSE:GTES), around 0.19% of its 13F portfolio. Adage Capital Management is also relatively very bullish on the stock, setting aside 0.1 percent of its 13F equity portfolio to GTES.
As aggregate interest increased, key hedge funds have been driving this bullishness. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated the most outsized position in Gates Industrial Corporation plc (NYSE:GTES). Adage Capital Management had $41.9 million invested in the company at the end of the quarter. Joseph Samuels's Islet Management also made a $1.5 million investment in the stock during the quarter. The other funds with brand new GTES positions are Matthew Hulsizer's PEAK6 Capital Management, Brandon Haley's Holocene Advisors, and Andrew Weiss's Weiss Asset Management.
Let's check out hedge fund activity in other stocks similar to Gates Industrial Corporation plc (NYSE:GTES). We will take a look at SkyWest, Inc. (NASDAQ:SKYW), WNS (Holdings) Limited (NYSE:WNS), RLJ Lodging Trust (NYSE:RLJ), and Itron, Inc. (NASDAQ:ITRI). This group of stocks' market values are similar to GTES's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SKYW,15,177096,2 WNS,18,214456,2 RLJ,19,148775,-2 ITRI,23,435552,1 Average,18.75,243970,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $244 million. That figure was $50 million in GTES's case. Itron, Inc. (NASDAQ:ITRI) is the most popular stock in this table. On the other hand SkyWest, Inc. (NASDAQ:SKYW) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Gates Industrial Corporation plc (NYSE:GTES) is even less popular than SKYW. Hedge funds clearly dropped the ball on GTES as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 GTES as the stock returned 18.1% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.