We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards DST Systems, Inc. (NYSE:DST), and what that likely means for the prospects of the company and its stock.
DST Systems, Inc. (NYSE:DST) investors should pay attention to an increase in hedge fund sentiment in recent months. DST was in 24 hedge funds’ portfolios at the end of the third quarter of 2016. There were 18 hedge funds in our database with DST positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Lazard Ltd (NYSE:LAZ), Tanger Factory Outlet Centers Inc. (NYSE:SKT), and TESARO Inc (NASDAQ:TSRO) to gather more data points.
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How have hedgies been trading DST Systems, Inc. (NYSE:DST)?
At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 33% rise from one quarter earlier. Hedge fund ownership of the stock has been volatile over the past year, with large swings in ownership nearly every quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Matt Sirovich and Jeremy Mindich’s Scopia Capital has the most valuable position in DST Systems, Inc. (NYSE:DST), worth close to $112.2 million, comprising 2% of its total 13F portfolio. On Scopia Capital’s heels is Cliff Asness of AQR Capital Management, with a $89.7 million position. Remaining peers that hold long positions encompass Ric Dillon’s Diamond Hill Capital, Ken Fisher’s Fisher Asset Management and Jim Simons’ Renaissance Technologies.
As one would reasonably expect, some big names have jumped into DST Systems, Inc. (NYSE:DST) headfirst. Brant Point Investment Management, managed by Ira Unschuld, established the largest position in DST Systems, Inc. (NYSE:DST). Brant Point Investment Management had $5.8 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $4.3 million position during the quarter. The other funds with brand new DST positions are John Overdeck and David Siegel’s Two Sigma Advisors, Glenn Russell Dubin’s Highbridge Capital Management, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.
Let’s also examine hedge fund activity in other stocks similar to DST Systems, Inc. (NYSE:DST). We will take a look at Lazard Ltd (NYSE:LAZ), Tanger Factory Outlet Centers Inc. (NYSE:SKT), TESARO Inc (NASDAQ:TSRO), and ICON plc – Ordinary Shares (NASDAQ:ICLR). This group of stocks’ market valuations are similar to DST’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LAZ | 14 | 420808 | -4 |
| SKT | 10 | 138018 | -4 |
| TSRO | 36 | 413798 | 8 |
| ICLR | 20 | 282106 | 0 |
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $314 million. That figure was $366 million in DST’s case. TESARO Inc (NASDAQ:TSRO) is the most popular stock in this table. On the other hand Tanger Factory Outlet Centers Inc. (NYSE:SKT) is the least popular one with only 10 bullish hedge fund positions. DST Systems, Inc. (NYSE:DST) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TSRO might be a better candidate to consider a long position in.
Disclosure: None
