While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Deutsche Bank Aktiengesellschaft (NYSE:DB).
Deutsche Bank Aktiengesellschaft (NYSE:DB) shareholders have witnessed a decrease in hedge fund sentiment lately. DB was in 11 hedge funds’ portfolios at the end of June. There were 13 hedge funds in our database with DB positions at the end of the previous quarter. Our calculations also showed that DB 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 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 take a gander at the recent hedge fund action regarding Deutsche Bank Aktiengesellschaft (NYSE:DB).
What does smart money think about Deutsche Bank Aktiengesellschaft (NYSE:DB)?
Heading into the third quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in DB a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Stephen Feinberg of Cerberus Capital Management
The largest stake in Deutsche Bank Aktiengesellschaft (NYSE:DB) was held by Hudson Executive Capital, which reported holding $500.1 million worth of stock at the end of March. It was followed by Cerberus Capital Management with a $478.3 million position. Other investors bullish on the company included Masters Capital Management, Citadel Investment Group, and Granite Point Capital.
Due to the fact that Deutsche Bank Aktiengesellschaft (NYSE:DB) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few money managers that decided to sell off their entire stakes in the second quarter. It’s worth mentioning that John Overdeck and David Siegel’s Two Sigma Advisors cut the biggest position of the 750 funds monitored by Insider Monkey, comprising close to $5.9 million in stock. Jeffrey Gendell’s fund, Tontine Asset Management, also said goodbye to its stock, about $0.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds in the second quarter.
Let’s now review hedge fund activity in other stocks similar to Deutsche Bank Aktiengesellschaft (NYSE:DB). We will take a look at HCP, Inc. (NYSE:HCP), MGM Resorts International (NYSE:MGM), New Oriental Education & Tech Group Inc. (NYSE:EDU), and KB Financial Group, Inc. (NYSE:KB). All of these stocks’ market caps are closest to DB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HCP | 26 | 634618 | 0 |
| MGM | 35 | 1982659 | -10 |
| EDU | 32 | 849989 | 4 |
| KB | 9 | 56122 | -3 |
| Average | 25.5 | 880847 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $881 million. That figure was $1016 million in DB’s case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (NYSE:KB) is the least popular one with only 9 bullish hedge fund positions. Deutsche Bank Aktiengesellschaft (NYSE:DB) 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 DB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DB 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 among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
