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 (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Deutsche Bank AG (NYSE:DB) based on those filings.
Hedge fund interest in Deutsche Bank AG (NYSE:DB) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare DB to other stocks including Tiffany & Co. (NYSE:TIF), Discovery Communications Inc. (NASDAQ:DISCK), and Grifols SA (NASDAQ:GRFS) to get a better sense of its popularity.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Stephen Feinberg of Cerberus Capital Management
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. Keeping this in mind we’re going to take a look at the new hedge fund action surrounding Deutsche Bank AG (NYSE:DB).
What have hedge funds been doing with Deutsche Bank AG (NYSE:DB)?
At the end of the fourth quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in DB over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Deutsche Bank AG (NYSE:DB) was held by Hudson Executive Capital, which reported holding $503.3 million worth of stock at the end of September. It was followed by Cerberus Capital Management with a $481.1 million position. Other investors bullish on the company included Masters Capital Management, Citadel Investment Group, and Odey Asset Management Group. In terms of the portfolio weights assigned to each position Cerberus Capital Management allocated the biggest weight to Deutsche Bank AG (NYSE:DB), around 59.07% of its 13F portfolio. Hudson Executive Capital is also relatively very bullish on the stock, setting aside 44.79 percent of its 13F equity portfolio to DB.
Due to the fact that Deutsche Bank AG (NYSE:DB) has witnessed falling interest from hedge fund managers, it’s easy to see that there exists a select few hedgies who sold off their positions entirely by the end of the third quarter. Intriguingly, Daniel S. Och’s OZ Management cut the biggest stake of the “upper crust” of funds followed by Insider Monkey, worth close to $10.1 million in stock. Nick Niell’s fund, Arrowgrass Capital Partners, also cut its stock, about $4.1 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Deutsche Bank AG (NYSE:DB) but similarly valued. These stocks are Tiffany & Co. (NYSE:TIF), Discovery Communications Inc. (NASDAQ:DISCK), Grifols SA (NASDAQ:GRFS), and NortonLifeLock Inc. (NASDAQ:NLOK). This group of stocks’ market valuations are similar to DB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TIF | 62 | 2223708 | 30 |
| DISCK | 33 | 948913 | 0 |
| GRFS | 21 | 767478 | -1 |
| NLOK | 46 | 1623946 | 5 |
| Average | 40.5 | 1391011 | 8.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.5 hedge funds with bullish positions and the average amount invested in these stocks was $1391 million. That figure was $1011 million in DB’s case. Tiffany & Co. (NYSE:TIF) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Deutsche Bank AG (NYSE:DB) is even less popular than GRFS. Hedge funds dodged a bullet by taking a bearish stance towards DB. Our calculations showed that the top 20 most popular hedge fund stocks 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 managed to beat the market by 3.2 percentage points. Unfortunately DB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DB investors were disappointed as the stock returned -29.6% during the same time period 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 so far in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
