We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Global Payments Inc (NYSE:GPN).
Is Global Payments Inc (NYSE:GPN) a cheap investment now? Hedge funds were cutting their exposure. The number of bullish hedge fund positions dropped by 1 in recent months. Global Payments Inc (NYSE:GPN) was in 66 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 68. Our calculations also showed that GPN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 56 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.
John Armitage of Egerton Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we're going to go over the latest hedge fund action encompassing Global Payments Inc (NYSE:GPN).
What have hedge funds been doing with Global Payments Inc (NYSE:GPN)?
At Q2's end, a total of 66 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -1% from one quarter earlier. By comparison, 37 hedge funds held shares or bullish call options in GPN a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Lone Pine Capital was the largest shareholder of Global Payments Inc (NYSE:GPN), with a stake worth $812.4 million reported as of the end of September. Trailing Lone Pine Capital was Egerton Capital Limited, which amassed a stake valued at $428.3 million. Alkeon Capital Management, Coatue Management, and Millennium Management 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 Value Holdings LP allocated the biggest weight to Global Payments Inc (NYSE:GPN), around 12.07% of its 13F portfolio. Highside Global Management is also relatively very bullish on the stock, setting aside 9.46 percent of its 13F equity portfolio to GPN.
Due to the fact that Global Payments Inc (NYSE:GPN) has faced falling interest from the smart money, it's easy to see that there exists a select few money managers that elected to cut their positions entirely heading into Q3. Interestingly, Larry Robbins's Glenview Capital dropped the largest stake of all the hedgies tracked by Insider Monkey, comprising close to $36.8 million in stock, and James Dinan's York Capital Management was right behind this move, as the fund dropped about $22.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds heading into Q3.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Global Payments Inc (NYSE:GPN) but similarly valued. These stocks are Sea Limited (NYSE:SE), Truist Financial Corporation (NYSE:TFC), CNOOC Limited (NYSE:CEO), Boston Scientific Corporation (NYSE:BSX), Intercontinental Exchange Inc (NYSE:ICE), The Bank of Nova Scotia (NYSE:BNS), and Newmont Corporation (NYSE:NEM). All of these stocks' market caps are closest to GPN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SE,82,6358325,6 TFC,33,287639,-1 CEO,13,166646,2 BSX,66,2312667,7 ICE,60,2754652,-1 BNS,13,252173,1 NEM,55,2418239,12 Average,46,2078620,3.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 46 hedge funds with bullish positions and the average amount invested in these stocks was $2079 million. That figure was $3312 million in GPN's case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 13 bullish hedge fund positions. Global Payments Inc (NYSE:GPN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GPN is 71.5. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately GPN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on GPN were disappointed as the stock returned 4.5% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.