Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
Is General Dynamics Corporation (NYSE: GD ) a healthy stock for your portfolio? Money managers are in a bearish mood. The number of bullish hedge fund positions were trimmed by 6 recently. Our calculations also showed that gd isn't among the 30 most popular stocks among hedge funds .
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 market by 18 percentage points since May 2014 through December 3, 2018 ( 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 our short portfolio.
We're going to take a glance at the latest hedge fund action regarding General Dynamics Corporation (NYSE: GD ).
How have hedgies been trading General Dynamics Corporation (NYSE:GD)?
At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 45 hedge funds with a bullish position in GD at the beginning of this year. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Longview Asset Management was the largest shareholder of General Dynamics Corporation (NYSE:GD), with a stake worth $6690 million reported as of the end of September. Trailing Longview Asset Management was Farallon Capital, which amassed a stake valued at $362.5 million. AQR Capital Management, Iridian Asset Management, and Adage Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that General Dynamics Corporation (NYSE:GD) has witnessed falling interest from hedge fund managers, it's safe to say that there were a few hedge funds that slashed their positions entirely heading into Q3. At the top of the heap, Christopher A. Winham's Tide Point Capital said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, worth about $32.4 million in stock. Malcolm Fairbairn's fund, Ascend Capital , also sold off its stock, about $26.5 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 6 funds heading into Q3.
Let's go over hedge fund activity in other stocks similar to General Dynamics Corporation (NYSE:GD). These stocks are Prudential plc (NYSE: PUK ), T-Mobile US, Inc. (NYSE: TMUS ), Raytheon Company (NYSE: RTN ), and Intuit Inc. (NASDAQ: INTU ). All of these stocks' market caps match GD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PUK,5,5258,-1 TMUS,80,4330201,12 RTN,35,1865955,-1 INTU,43,2393970,11 Average,40.75,2148846,5.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $2.15 billion. That figure was $8.47 billion in GD's case. T-Mobile US, Inc. (NYSE: TMUS ) is the most popular stock in this table. On the other hand Prudential Public Limited Company (NYSE: PUK ) is the least popular one with only 5 bullish hedge fund positions. General Dynamics Corporation (NYSE:GD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard TMUS might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey .