It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Drive Shack Inc. (NYSE:DS).
Is Drive Shack Inc. (NYSE:DS) a healthy stock for your portfolio? The best stock pickers are in a bearish mood. The number of bullish hedge fund bets dropped by 3 lately. Our calculations also showed that DS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). DS was in 5 hedge funds’ portfolios at the end of the third quarter of 2019. There were 8 hedge funds in our database with DS positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In today’s marketplace there are a multitude of methods stock traders employ to appraise stocks. A couple of the best methods are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the top money managers can trounce the market by a healthy margin (see the details here).
David Harding of Winton Capital Management
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 we’re going to check out the key hedge fund action encompassing Drive Shack Inc. (NYSE:DS).
What does smart money think about Drive Shack Inc. (NYSE:DS)?
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -38% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DS over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Sheffield Asset Management held the most valuable stake in Drive Shack Inc. (NYSE:DS), which was worth $5.1 million at the end of the third quarter. On the second spot was Winton Capital Management which amassed $0.4 million worth of shares. D E Shaw, AQR Capital Management, and Magnetar Capital 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 Sheffield Asset Management allocated the biggest weight to Drive Shack Inc. (NYSE:DS), around 10.59% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.0042 percent of its 13F equity portfolio to DS.
Due to the fact that Drive Shack Inc. (NYSE:DS) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of fund managers that elected to cut their full holdings heading into Q4. It’s worth mentioning that Israel Englander’s Millennium Management said goodbye to the largest stake of the 750 funds followed by Insider Monkey, totaling close to $0.1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dumped its stock, about $0.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 3 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to Drive Shack Inc. (NYSE:DS). We will take a look at NeoPhotonics Corporation (NYSE:NPTN), UFP Technologies, Inc. (NASDAQ:UFPT), Urovant Sciences Ltd. (NASDAQ:UROV), and Cellular Biomedicine Group, Inc. (NASDAQ:CBMG). All of these stocks’ market caps resemble DS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NPTN | 20 | 52277 | 3 |
| UFPT | 10 | 47314 | 0 |
| UROV | 11 | 41857 | 3 |
| CBMG | 2 | 13955 | 1 |
| Average | 10.75 | 38851 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $6 million in DS’s case. NeoPhotonics Corporation (NYSE:NPTN) is the most popular stock in this table. On the other hand Cellular Biomedicine Group, Inc. (NASDAQ:CBMG) is the least popular one with only 2 bullish hedge fund positions. Drive Shack Inc. (NYSE:DS) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DS investors were disappointed as the stock returned -10.9% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
