Is GameStop Corp. (NYSE:GME) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Hedge fund interest in GameStop Corp. (NYSE:GME) 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 GME to other stocks including Tredegar Corporation (NYSE:TG), Vishay Precision Group Inc (NYSE:VPG), and New Gold Inc. (NYSE:NGD) to get a better sense of its popularity. Our calculations also showed that GME isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to go over the key hedge fund action encompassing GameStop Corp. (NYSE:GME).
How are hedge funds trading GameStop Corp. (NYSE:GME)?
At Q2's end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in GME a year ago. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in GameStop Corp. (NYSE:GME) was held by Renaissance Technologies, which reported holding $28 million worth of stock at the end of March. It was followed by Aristeia Capital with a $16.1 million position. Other investors bullish on the company included 3G Capital, Alpine Associates, and Millennium Management.
Since GameStop Corp. (NYSE:GME) has witnessed declining sentiment from the smart money, it's safe to say that there lies a certain "tier" of money managers that decided to sell off their entire stakes in the second quarter. Intriguingly, John Tompkins's Tyvor Capital sold off the biggest stake of the "upper crust" of funds monitored by Insider Monkey, totaling close to $13.8 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also cut its stock, about $10.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as GameStop Corp. (NYSE:GME) but similarly valued. We will take a look at Tredegar Corporation (NYSE:TG), Vishay Precision Group Inc (NYSE:VPG), New Gold Inc. (NYSE:NGD), and AGM Group Holdings Inc. (NASDAQ:AGMH). This group of stocks' market valuations are closest to GME's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TG,11,66294,-1 VPG,14,158668,3 NGD,13,62467,0 AGMH,1,210,1 Average,9.75,71910,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $72 million. That figure was $117 million in GME's case. Vishay Precision Group Inc (NYSE:VPG) is the most popular stock in this table. On the other hand AGM Group Holdings Inc. (NASDAQ:AGMH) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks GameStop Corp. (NYSE:GME) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately GME wasn't nearly as popular as these 20 stocks and hedge funds that were betting on GME were disappointed as the stock returned 0.9% during the third quarter 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.