Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Dorchester Minerals LP (NASDAQ:DMLP).
Hedge fund interest in Dorchester Minerals LP (NASDAQ:DMLP) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare DMLP to other stocks including Control4 Corp (NASDAQ:CTRL), One Liberty Properties, Inc. (NYSE:OLP), and Zymeworks Inc. (NYSE:ZYME) to get a better sense of its popularity.
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
We’re going to take a gander at the fresh hedge fund action regarding Dorchester Minerals LP (NASDAQ:DMLP).
What have hedge funds been doing with Dorchester Minerals LP (NASDAQ:DMLP)?
At Q4’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in DMLP a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, SCW Capital Management was the largest shareholder of Dorchester Minerals LP (NASDAQ:DMLP), with a stake worth $11.4 million reported as of the end of December. Trailing SCW Capital Management was Royce & Associates, which amassed a stake valued at $10.1 million. Wexford Capital, Arrowstreet Capital, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PEAK6 Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was SCW Capital Management).
Let’s go over hedge fund activity in other stocks similar to Dorchester Minerals LP (NASDAQ:DMLP). These stocks are Control4 Corp (NASDAQ:CTRL), One Liberty Properties, Inc. (NYSE:OLP), Zymeworks Inc. (NYSE:ZYME), and Mercantile Bank Corp. (NASDAQ:MBWM). All of these stocks’ market caps are closest to DMLP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CTRL | 12 | 34532 | 0 |
| OLP | 5 | 22345 | -1 |
| ZYME | 11 | 103481 | -2 |
| MBWM | 6 | 24700 | -2 |
| Average | 8.5 | 46265 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $29 million in DMLP’s case. Control4 Corp (NASDAQ:CTRL) is the most popular stock in this table. On the other hand One Liberty Properties, Inc. (NYSE:OLP) is the least popular one with only 5 bullish hedge fund positions. Dorchester Minerals LP (NASDAQ:DMLP) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on DMLP as the stock returned 38.7% and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
