Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Dow Inc. (NYSE:DOW) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that DOW isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 some fund managers who are betting on Dow reaching 40000 in a year, 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 check out the recent hedge fund action encompassing Dow Inc. (NYSE:DOW).
What have hedge funds been doing with Dow Inc. (NYSE:DOW)?
Heading into the third quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 313% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in DOW a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Maverick Capital held the most valuable stake in Dow Inc. (NYSE:DOW), which was worth $90.6 million at the end of the second quarter. On the second spot was Adage Capital Management which amassed $41.3 million worth of shares. Moreover, Citadel Investment Group, Gotham Asset Management, and Masters Capital Management were also bullish on Dow Inc. (NYSE:DOW), allocating a large percentage of their portfolios to this stock.
Now, specific money managers were leading the bulls’ herd. Adage Capital Management, managed by Phill Gross and Robert Atchinson, established the most valuable position in Dow Inc. (NYSE:DOW). Adage Capital Management had $41.3 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $30.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Joel Greenblatt’s Gotham Asset Management, Mike Masters’s Masters Capital Management, and Nick Niell’s Arrowgrass Capital Partners.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Dow Inc. (NYSE:DOW) but similarly valued. We will take a look at Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA), Activision Blizzard, Inc. (NASDAQ:ATVI), Fiserv, Inc. (NASDAQ:FISV), and Altaba Inc. (NASDAQ:AABA). This group of stocks’ market valuations resemble DOW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BBVA | 7 | 181357 | 3 |
| ATVI | 46 | 2957305 | -4 |
| FISV | 48 | 2256630 | 1 |
| AABA | 59 | 13834865 | -17 |
| Average | 40 | 4807539 | -4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $4808 million. That figure was $326 million in DOW’s case. Altaba Inc. (NASDAQ:AABA) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) is the least popular one with only 7 bullish hedge fund positions. Dow Inc. (NYSE:DOW) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately DOW wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DOW investors were disappointed as the stock returned -1.7% during the third 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 (see the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
