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 DMC Global Inc (NASDAQ:BOOM), and what that likely means for the prospects of the company and its stock.
DMC Global Inc (NASDAQ:BOOM) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds’ portfolios at the end of September, same as at the end of June. 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 NCI Inc (NASDAQ:NCIT), Vuzix Corporation (NASDAQ:VUZI), and Provident Financial Holdings, Inc. (NASDAQ:PROV) to gather more data points.
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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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Hedge fund activity in DMC Global Inc (NASDAQ:BOOM)
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the second quarter of 2016. There were also 7 hedge funds with a bullish position in BOOM at the beginning of this year, with sentiment remaining flat all year. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Peter Schliemann’s Rutabaga Capital Management has the largest position in DMC Global Inc (NASDAQ:BOOM), worth close to $6.7 million, amounting to 1.3% of its total 13F portfolio. Coming in second is Royce & Associates, led by Chuck Royce, which holds a $6.4 million position. Remaining hedge funds and institutional investors with similar optimism comprise Bryant Regan’s Lafitte Capital Management, Renaissance Technologies, one of the largest hedge funds in the world, and David E. Shaw’s D E Shaw. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions either. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as DMC Global Inc (NASDAQ:BOOM) but similarly valued. These stocks are NCI Inc (NASDAQ:NCIT), Vuzix Corporation (NASDAQ:VUZI), Provident Financial Holdings, Inc. (NASDAQ:PROV), and Immune Desing Corp (NASDAQ:IMDZ). This group of stocks’ market caps are closest to BOOM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NCIT | 3 | 4860 | 0 |
| VUZI | 3 | 1774 | -1 |
| PROV | 2 | 6449 | 1 |
| IMDZ | 10 | 20029 | 3 |
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $17 million in BOOM’s case. Immune Desing Corp (NASDAQ:IMDZ) is the most popular stock in this table. On the other hand Provident Financial Holdings, Inc. (NASDAQ:PROV) is the least popular one with only 2 bullish hedge fund positions. DMC Global Inc (NASDAQ:BOOM) 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 IMDZ might be a better candidate to consider taking a long position in.
Disclosure: None
