Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. NASDAQ and Russell 2000 indices were already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points in the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Denbury Resources Inc. (NYSE:DNR).
Denbury Resources Inc. (NYSE:DNR) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 21 hedge funds’ portfolios at the end of the fourth quarter of 2018. 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 Wesco Aircraft Holdings Inc (NYSE:WAIR), 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), and China Cord Blood Corp (NYSE:CO) to gather more data points.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a glance at the latest hedge fund action surrounding Denbury Resources Inc. (NYSE:DNR).
Hedge fund activity in Denbury Resources Inc. (NYSE:DNR)
At Q4’s end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2018. By comparison, 13 hedge funds held shares or bullish call options in DNR a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, D E Shaw held the most valuable stake in Denbury Resources Inc. (NYSE:DNR), which was worth $11.2 million at the end of the fourth quarter. On the second spot was Millennium Management which amassed $8.6 million worth of shares. Moreover, Elm Ridge Capital, Renaissance Technologies, and Citadel Investment Group were also bullish on Denbury Resources Inc. (NYSE:DNR), allocating a large percentage of their portfolios to this stock.
Seeing as Denbury Resources Inc. (NYSE:DNR) has experienced declining sentiment from hedge fund managers, we can see that there lies a certain “tier” of hedgies who were dropping their entire stakes heading into Q3. Interestingly, MacKenzie B. Davis and Kenneth L. Settles Jr’s SailingStone Capital Partners said goodbye to the largest stake of the 700 funds followed by Insider Monkey, comprising close to $152 million in stock, and Mark Kingdon’s Kingdon Capital was right behind this move, as the fund said goodbye to about $6.1 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Denbury Resources Inc. (NYSE:DNR). We will take a look at Wesco Aircraft Holdings Inc (NYSE:WAIR), 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), China Cord Blood Corp (NYSE:CO), and Granite Point Mortgage Trust Inc. (NYSE:GPMT). This group of stocks’ market caps match DNR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WAIR | 17 | 172345 | 0 |
| FLWS | 14 | 47700 | 0 |
| CO | 7 | 29046 | 0 |
| GPMT | 6 | 12976 | 0 |
| Average | 11 | 65517 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $51 million in DNR’s case. Wesco Aircraft Holdings Inc (NYSE:WAIR) is the most popular stock in this table. On the other hand Granite Point Mortgage Trust Inc. (NYSE:GPMT) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Denbury Resources Inc. (NYSE:DNR) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on DNR as the stock returned 49.7% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
