Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 13.1% in the 2.5 months of 2019 (including dividend payments). Conversely, hedge funds’ 15 preferred S&P 500 stocks generated a return of 19.7% during the same period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Globus Medical Inc (NYSE:GMED).
Globus Medical Inc (NYSE:GMED) was in 18 hedge funds' portfolios at the end of the fourth quarter of 2018. GMED has experienced a decrease in hedge fund sentiment recently. There were 19 hedge funds in our database with GMED positions at the end of the previous quarter. Our calculations also showed that GMED isn't among the 30 most popular stocks among hedge funds.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the key hedge fund action surrounding Globus Medical Inc (NYSE:GMED).
Hedge fund activity in Globus Medical Inc (NYSE:GMED)
At Q4's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GMED over the last 14 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Globus Medical Inc (NYSE:GMED), with a stake worth $108.4 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $52.9 million. Arrowstreet Capital, Marshall Wace LLP, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Globus Medical Inc (NYSE:GMED) has experienced falling interest from the smart money, we can see that there exists a select few money managers who were dropping their full holdings by the end of the third quarter. At the top of the heap, Steve Cohen's Point72 Asset Management cut the biggest position of all the hedgies monitored by Insider Monkey, valued at an estimated $8.5 million in stock. Israel Englander's fund, Millennium Management, also dropped its stock, about $4.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks similar to Globus Medical Inc (NYSE:GMED). These stocks are MSC Industrial Direct Co Inc (NYSE:MSM), Wix.Com Ltd (NASDAQ:WIX), Transocean Ltd (NYSE:RIG), and ITT Inc. (NYSE:ITT). All of these stocks' market caps are closest to GMED's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSM,21,169533,2 WIX,27,656048,3 RIG,33,755414,-9 ITT,25,308324,6 Average,26.5,472330,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $472 million. That figure was $229 million in GMED's case. Transocean Ltd (NYSE:RIG) is the most popular stock in this table. On the other hand MSC Industrial Direct Co Inc (NYSE:MSM) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Globus Medical Inc (NYSE:GMED) is even less popular than MSM. Hedge funds dodged a bullet by taking a bearish stance towards GMED. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately GMED wasn't nearly as popular as these 15 stock (hedge fund sentiment was very bearish); GMED investors were disappointed as the stock returned 3.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.