Hedge funds are known to underperform the bull markets but that's not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds' consensus picks on average deliver market beating returns. For example in the first 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds' purchases. We know better. That's why we scrutinize hedge fund sentiment before we invest in a stock like Graphic Packaging Holding Company (NYSE:GPK).
Is Graphic Packaging Holding Company (NYSE:GPK) undervalued? The smart money is turning less bullish. The number of bullish hedge fund bets fell by 5 in recent months. Our calculations also showed that gpk isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? 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.
Let's view the fresh hedge fund action encompassing Graphic Packaging Holding Company (NYSE:GPK).
What does the smart money think about Graphic Packaging Holding Company (NYSE:GPK)?
At Q4's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in GPK a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Canyon Capital Advisors, managed by Joshua Friedman and Mitchell Julis, holds the largest position in Graphic Packaging Holding Company (NYSE:GPK). Canyon Capital Advisors has a $165.3 million position in the stock, comprising 3.9% of its 13F portfolio. On Canyon Capital Advisors's heels is Eminence Capital, managed by Ricky Sandler, which holds a $164 million position; 3.2% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions encompass Israel Englander's Millennium Management, Lee Ainslie's Maverick Capital and Ken Griffin's Citadel Investment Group.
Due to the fact that Graphic Packaging Holding Company (NYSE:GPK) has faced falling interest from the smart money, it's safe to say that there exists a select few funds who were dropping their entire stakes in the third quarter. It's worth mentioning that Malcolm Fairbairn's Ascend Capital cut the largest investment of the 700 funds monitored by Insider Monkey, comprising about $83.2 million in stock. Jonathan Barrett and Paul Segal's fund, Luminus Management, also dumped its stock, about $35 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 5 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Graphic Packaging Holding Company (NYSE:GPK) but similarly valued. These stocks are OneMain Holdings Inc (NYSE:OMF), Associated Banc-Corp (NYSE:ASB), Horizon Pharma plc (NASDAQ:HZNP), and PNM Resources, Inc. (NYSE:PNM). This group of stocks' market values are closest to GPK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OMF,22,239773,-4 ASB,18,220502,1 HZNP,28,872682,7 PNM,18,323145,-1 Average,21.5,414026,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $414 million. That figure was $637 million in GPK's case. Horizon Pharma plc (NASDAQ:HZNP) is the most popular stock in this table. On the other hand Associated Banc-Corp (NYSE:ASB) is the least popular one with only 18 bullish hedge fund positions. Graphic Packaging Holding Company (NYSE:GPK) is not the least popular stock in this group but hedge fund interest is still below average. 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 GPK, though not to the same extent, as the stock returned 22.7% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.