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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards StealthGas Inc. (NASDAQ:GASS).
Hedge fund interest in StealthGas Inc. (NASDAQ:GASS) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that GASS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Corvus Pharmaceuticals, Inc. (NASDAQ:CRVS), PRGX Global Inc (NASDAQ:PRGX), and Intrepid Potash, Inc. (NYSE:IPI) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Chuck Royce of Royce & Associates
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we're going to go over the recent hedge fund action regarding StealthGas Inc. (NASDAQ:GASS).
How have hedgies been trading StealthGas Inc. (NASDAQ:GASS)?
At the end of September, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GASS over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Glendon Capital Management held the most valuable stake in StealthGas Inc. (NASDAQ:GASS), which was worth $19.3 million at the end of the third quarter. On the second spot was MSDC Management which amassed $10.4 million worth of shares. Redwood Capital Management, Renaissance Technologies, and Royce & Associates 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 Glendon Capital Management allocated the biggest weight to StealthGas Inc. (NASDAQ:GASS), around 4.11% of its 13F portfolio. MSDC Management is also relatively very bullish on the stock, designating 2.19 percent of its 13F equity portfolio to GASS.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as StealthGas Inc. (NASDAQ:GASS) but similarly valued. We will take a look at Corvus Pharmaceuticals, Inc. (NASDAQ:CRVS), PRGX Global Inc (NASDAQ:PRGX), Intrepid Potash, Inc. (NYSE:IPI), Identiv, Inc. (NASDAQ:INVE), Bankwell Financial Group, Inc. (NASDAQ:BWFG), Orgenesis Inc. (NASDAQ:ORGS), and Vista Gold Corp. (NYSE:VGZ). All of these stocks' market caps match GASS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRVS,7,52499,-2 PRGX,9,38796,-1 IPI,7,3023,-1 INVE,8,12583,6 BWFG,6,24188,0 ORGS,2,3210,-4 VGZ,2,20819,-1 Average,5.9,22160,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.9 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $44 million in GASS's case. PRGX Global Inc (NASDAQ:PRGX) is the most popular stock in this table. On the other hand Orgenesis Inc. (NASDAQ:ORGS) is the least popular one with only 2 bullish hedge fund positions. StealthGas Inc. (NASDAQ:GASS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GASS is 43.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 percentage points. These stocks gained 30.7% in 2020 through November 27th and surpassed the market again by 16.1 percentage points. Unfortunately GASS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GASS investors were disappointed as the stock returned -22.9% since the end of September (through 11/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.