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Were Hedge Funds Right About Selling Generac Holdings Inc. (GNRC)?

Abigail Fisher
·6 min read

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 Generac Holdings Inc. (NYSE:GNRC) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Generac Holdings Inc. (NYSE:GNRC) shareholders have witnessed a decrease in enthusiasm from smart money recently. GNRC was in 32 hedge funds' portfolios at the end of December. There were 33 hedge funds in our database with GNRC holdings at the end of the previous quarter. Our calculations also showed that GNRC 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 21st century investor’s toolkit there are dozens of metrics market participants employ to value stocks. A duo of the less utilized metrics are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the top money managers can beat the market by a significant margin (see the details here).

[caption id="attachment_69704" align="aligncenter" width="450"] Andrew Sandler of Sandler Capital Management[/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. Now we're going to view the new hedge fund action encompassing Generac Holdings Inc. (NYSE:GNRC).

How are hedge funds trading Generac Holdings Inc. (NYSE:GNRC)?

At Q4's end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in GNRC a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Impax Asset Management was the largest shareholder of Generac Holdings Inc. (NYSE:GNRC), with a stake worth $101.7 million reported as of the end of September. Trailing Impax Asset Management was Alyeska Investment Group, which amassed a stake valued at $48.9 million. Ariel Investments, Arrowstreet Capital, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position BeaconLight Capital allocated the biggest weight to Generac Holdings Inc. (NYSE:GNRC), around 3.91% of its 13F portfolio. G2 Investment Partners Management is also relatively very bullish on the stock, dishing out 1.72 percent of its 13F equity portfolio to GNRC.

Judging by the fact that Generac Holdings Inc. (NYSE:GNRC) has experienced a decline in interest from hedge fund managers, logic holds that there lies a certain "tier" of hedgies who were dropping their full holdings last quarter. It's worth mentioning that Ira Unschuld's Brant Point Investment Management cut the largest investment of the "upper crust" of funds watched by Insider Monkey, valued at close to $3.1 million in stock. Curtis Schenker and Craig Effron's fund, Scoggin, also dumped its stock, about $1.4 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Generac Holdings Inc. (NYSE:GNRC) but similarly valued. These stocks are IAA, Inc. (NYSE:IAA), Berry Global Group Inc (NYSE:BERY), United Microelectronics Corp (NYSE:UMC), and Healthcare Trust Of America Inc (NYSE:HTA). This group of stocks' market caps match GNRC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IAA,37,1058182,5 BERY,47,1623514,4 UMC,14,124868,1 HTA,11,186628,-9 Average,27.25,748298,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $748 million. That figure was $369 million in GNRC's case. Berry Global Group Inc (NYSE:BERY) is the most popular stock in this table. On the other hand Healthcare Trust Of America Inc (NYSE:HTA) is the least popular one with only 11 bullish hedge fund positions. Generac Holdings Inc. (NYSE:GNRC) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 3.2 percentage points. Hedge funds were also right about betting on GNRC as the stock returned -13.1% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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

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