U.S. Markets closed

Here’s What Hedge Funds Think About Gladstone Commercial Corporation (GOOD)

Reymerlyn Martin

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Gladstone Commercial Corporation (NASDAQ:GOOD) worth your attention right now? Prominent investors are taking an optimistic view. The number of long hedge fund bets moved up by 1 lately. Our calculations also showed that GOOD isn't among the 30 most popular stocks among hedge funds. GOOD was in 7 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 6 hedge funds in our database with GOOD positions at the end of the previous quarter.

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 32 percentage points since May 2014 through March 12, 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.

Michael Platt BlueCrest Capital

We're going to view the recent hedge fund action regarding Gladstone Commercial Corporation (NASDAQ:GOOD).

How have hedgies been trading Gladstone Commercial Corporation (NASDAQ:GOOD)?

At Q4's end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in GOOD 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 boosting their holdings considerably (or already accumulated large positions).

GOOD_may2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the largest position in Gladstone Commercial Corporation (NASDAQ:GOOD). Renaissance Technologies has a $43.7 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies's heels is Israel Englander of Millennium Management, with a $4.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions encompass John Overdeck and David Siegel's Two Sigma Advisors, D. E. Shaw's D E Shaw and Paul Marshall and Ian Wace's Marshall Wace LLP.

Now, specific money managers were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most valuable position in Gladstone Commercial Corporation (NASDAQ:GOOD). Marshall Wace LLP had $0.5 million invested in the company at the end of the quarter. Michael Platt and William Reeves's BlueCrest Capital Mgmt. also made a $0.3 million investment in the stock during the quarter.

Let's also examine hedge fund activity in other stocks similar to Gladstone Commercial Corporation (NASDAQ:GOOD). These stocks are Superior Energy Services, Inc. (NYSE:SPN), Barnes & Noble, Inc. (NYSE:BKS), Calix Inc (NYSE:CALX), and Veritex Holdings Inc (NASDAQ:VBTX). This group of stocks' market caps are closest to GOOD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPN,20,79727,3 BKS,17,34164,1 CALX,14,119940,2 VBTX,8,51816,-9 Average,14.75,71412,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $52 million in GOOD's case. Superior Energy Services, Inc. (NYSE:SPN) is the most popular stock in this table. On the other hand Veritex Holdings Inc (NASDAQ:VBTX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Gladstone Commercial Corporation (NASDAQ:GOOD) is even less popular than VBTX. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on GOOD, though not to the same extent, as the stock returned 17.9% and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

Related Content