Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves.
Douglas Dynamics Inc (NYSE:PLOW) was in 7 hedge funds’ portfolios at the end of the second quarter of 2019. PLOW has experienced a decrease in hedge fund sentiment recently. There were 11 hedge funds in our database with PLOW holdings at the end of the previous quarter. Our calculations also showed that PLOW isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 40 percentage points since May 2014 through May 30, 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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the key hedge fund action encompassing Douglas Dynamics Inc (NYSE:PLOW).
What does smart money think about Douglas Dynamics Inc (NYSE:PLOW)?
Heading into the third quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -36% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in PLOW a year ago. So, let’s review 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, Navellier & Associates, managed by Louis Navellier, holds the largest position in Douglas Dynamics Inc (NYSE:PLOW). Navellier & Associates has a $3.5 million position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is Ken Griffin of Citadel Investment Group, with a $3.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions consist of Renaissance Technologies, John Overdeck and David Siegel’s Two Sigma Advisors and Israel Englander’s Millennium Management.
Seeing as Douglas Dynamics Inc (NYSE:PLOW) has experienced declining sentiment from the smart money, we can see that there lies a certain “tier” of hedge funds that decided to sell off their positions entirely last quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest investment of all the hedgies followed by Insider Monkey, valued at close to $2.9 million in call options, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund sold off about $2 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to Douglas Dynamics Inc (NYSE:PLOW). We will take a look at Lindsay Corporation (NYSE:LNN), CNX Midstream Partners LP (NYSE:CNXM), Qiwi PLC (NASDAQ:QIWI), and Bluegreen Vacations Corporation (NYSE:BXG). This group of stocks’ market valuations are closest to PLOW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LNN | 6 | 175783 | -1 |
| CNXM | 5 | 12359 | -2 |
| QIWI | 13 | 105199 | 1 |
| BXG | 6 | 29100 | 0 |
| Average | 7.5 | 80610 | -0.5 |
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 $81 million. That figure was $10 million in PLOW’s case. Qiwi PLC (NASDAQ:QIWI) is the most popular stock in this table. On the other hand CNX Midstream Partners LP (NYSE:CNXM) is the least popular one with only 5 bullish hedge fund positions. Douglas Dynamics Inc (NYSE:PLOW) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on PLOW as the stock returned 12.7% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
