U.S. Markets closed

Were Hedge Funds Right About Souring On Gold Fields Limited (GFI)?

Abigail Fisher

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 Gold Fields Limited (NYSE:GFI) a superb stock to buy now? Money managers are reducing their bets on the stock. The number of bullish hedge fund positions dropped by 1 lately. Our calculations also showed that GFI 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.

Chuck Royce

Let's take a glance at the key hedge fund action surrounding Gold Fields Limited (NYSE:GFI).

What have hedge funds been doing with Gold Fields Limited (NYSE:GFI)?

At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the second quarter of 2018. On the other hand, there were a total of 14 hedge funds with a bullish position in GFI 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.

GFI_apr2019

Among these funds, Renaissance Technologies held the most valuable stake in Gold Fields Limited (NYSE:GFI), which was worth $71 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $50.1 million worth of shares. Moreover, Millennium Management, Arrowstreet Capital, and Royce & Associates were also bullish on Gold Fields Limited (NYSE:GFI), allocating a large percentage of their portfolios to this stock.

Judging by the fact that Gold Fields Limited (NYSE:GFI) has faced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there exists a select few money managers that elected to cut their entire stakes heading into Q3. Intriguingly, Ken Griffin's Citadel Investment Group said goodbye to the largest investment of the "upper crust" of funds followed by Insider Monkey, totaling close to $0.5 million in stock. D. E. Shaw's fund, D E Shaw, also dropped its stock, about $0.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q3.

Let's now take a look at hedge fund activity in other stocks similar to Gold Fields Limited (NYSE:GFI). These stocks are Armstrong World Industries, Inc. (NYSE:AWI), Ligand Pharmaceuticals Inc. (NASDAQ:LGND), 2U Inc (NASDAQ:TWOU), and RLJ Lodging Trust (NYSE:RLJ). This group of stocks' market caps resemble GFI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AWI,26,519892,4 LGND,24,532704,-4 TWOU,11,106758,-3 RLJ,25,220103,5 Average,21.5,344864,0.5 [/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 $345 million. That figure was $161 million in GFI's case. Armstrong World Industries, Inc. (NYSE:AWI) is the most popular stock in this table. On the other hand 2U Inc (NASDAQ:TWOU) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Gold Fields Limited (NYSE:GFI) is even less popular than TWOU. Hedge funds dodged a bullet by taking a bearish stance towards GFI. 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 GFI wasn't nearly as popular as these 15 stock (hedge fund sentiment was very bearish); GFI investors were disappointed as the stock returned 4.6% 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.

Related Content