Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to DRDGOLD Limited (NYSE:DRD) changed recently.
DRDGOLD Limited (NYSE:DRD) was in 4 hedge funds’ portfolios at the end of the third quarter of 2019. DRD has experienced an increase in hedge fund interest recently. There were 3 hedge funds in our database with DRD holdings at the end of the previous quarter. Our calculations also showed that DRD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Matthew Hulsizer of PEAK6 Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s analyze the recent hedge fund action encompassing DRDGOLD Limited (NYSE:DRD).
How have hedgies been trading DRDGOLD Limited (NYSE:DRD)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. By comparison, 4 hedge funds held shares or bullish call options in DRD a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies holds the most valuable position in DRDGOLD Limited (NYSE:DRD). Renaissance Technologies has a $5.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Israel Englander of Millennium Management, with a $1.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish consist of Ken Griffin’s Citadel Investment Group, Matthew Hulsizer’s PEAK6 Capital Management and . In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to DRDGOLD Limited (NYSE:DRD), around 0.0043% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, earmarking 0.0022 percent of its 13F equity portfolio to DRD.
With a general bullishness amongst the heavyweights, specific money managers have jumped into DRDGOLD Limited (NYSE:DRD) headfirst. PEAK6 Capital Management, managed by Matthew Hulsizer, created the largest position in DRDGOLD Limited (NYSE:DRD). PEAK6 Capital Management had $0 million invested in the company at the end of the quarter.
Let’s check out hedge fund activity in other stocks similar to DRDGOLD Limited (NYSE:DRD). We will take a look at Rimini Street, Inc. (NASDAQ:RMNI), SmartFinancial, Inc. (NASDAQ:SMBK), CapStar Financial Holdings, Inc. (NASDAQ:CSTR), and Veritiv Corporation (NYSE:VRTV). This group of stocks’ market caps resemble DRD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RMNI | 4 | 12681 | -2 |
| SMBK | 7 | 29723 | 2 |
| CSTR | 8 | 12324 | 4 |
| VRTV | 11 | 74905 | 2 |
| Average | 7.5 | 32408 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $7 million in DRD’s case. Veritiv Corporation (NYSE:VRTV) is the most popular stock in this table. On the other hand Rimini Street, Inc. (NASDAQ:RMNI) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks DRDGOLD Limited (NYSE:DRD) is even less popular than RMNI. Hedge funds dodged a bullet by taking a bearish stance towards DRD. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DRD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DRD investors were disappointed as the stock returned -3.8% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
