Hedge Funds Started Selling Genpact Limited (G) Before The Coronavirus
We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Genpact Limited (NYSE:G) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Genpact Limited (NYSE:G) shareholders have witnessed a decrease in support from the world's most elite money managers lately. Our calculations also showed that G isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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John Overdeck of Two Sigma Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind we're going to take a peek at the fresh hedge fund action regarding Genpact Limited (NYSE:G).
What have hedge funds been doing with Genpact Limited (NYSE:G)?
Heading into the first quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in G a year ago. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Genpact Limited (NYSE:G) was held by D E Shaw, which reported holding $165.4 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $143.5 million position. Other investors bullish on the company included Junto Capital Management, Two Sigma Advisors, and Pzena Investment Management. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Genpact Limited (NYSE:G), around 10.66% of its 13F portfolio. Old Well Partners is also relatively very bullish on the stock, earmarking 5.64 percent of its 13F equity portfolio to G.
Because Genpact Limited (NYSE:G) has witnessed declining sentiment from hedge fund managers, we can see that there is a sect of hedge funds who were dropping their full holdings heading into Q4. It's worth mentioning that Jeffrey Talpins's Element Capital Management dropped the largest investment of the 750 funds watched by Insider Monkey, worth about $14 million in stock, and Mark Coe's Intrinsic Edge Capital was right behind this move, as the fund dumped about $7.8 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds heading into Q4.
Let's go over hedge fund activity in other stocks similar to Genpact Limited (NYSE:G). These stocks are Vedanta Ltd (NYSE:VEDL), Reliance Steel & Aluminum Co. (NYSE:RS), Kohl's Corporation (NYSE:KSS), and Xerox Corporation (NYSE:XRX). This group of stocks' market valuations resemble G's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VEDL,13,74538,2 RS,34,390307,10 KSS,28,405115,-2 XRX,39,1458893,6 Average,28.5,582213,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $582 million. That figure was $769 million in G's case. Xerox Corporation (NYSE:XRX) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 13 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 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 -35.6% during the same time period 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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