Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Diebold Nixdorf Incorporated (NYSE:DBD).
Is Diebold Nixdorf Incorporated (NYSE:DBD) a good investment now? The best stock pickers are taking a bullish view. The number of bullish hedge fund positions moved up by 2 lately. Our calculations also showed that DBD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the fresh hedge fund action surrounding Diebold Nixdorf Incorporated (NYSE:DBD).
How have hedgies been trading Diebold Nixdorf Incorporated (NYSE:DBD)?
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DBD over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Mario Gabelli’s GAMCO Investors has the largest position in Diebold Nixdorf Incorporated (NYSE:DBD), worth close to $57.9 million, amounting to 0.5% of its total 13F portfolio. The second largest stake is held by Ancora Advisors, led by Frederick DiSanto, holding a $30 million position; 1.3% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions consist of David E. Shaw’s D E Shaw, Ken Griffin’s Citadel Investment Group and Don Morgan’s Brigade Capital. In terms of the portfolio weights assigned to each position Prescott Group Capital Management allocated the biggest weight to Diebold Nixdorf Incorporated (NYSE:DBD), around 1.68% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, setting aside 1.32 percent of its 13F equity portfolio to DBD.
As industrywide interest jumped, some big names were leading the bulls’ herd. Algert Coldiron Investors, managed by Peter Algert and Kevin Coldiron, established the most outsized position in Diebold Nixdorf Incorporated (NYSE:DBD). Algert Coldiron Investors had $0.9 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $0.6 million investment in the stock during the quarter. The other funds with brand new DBD positions are David E. Shaw’s D E Shaw, Minhua Zhang’s Weld Capital Management, and David Harding’s Winton Capital Management.
Let’s now review hedge fund activity in other stocks similar to Diebold Nixdorf Incorporated (NYSE:DBD). These stocks are 21Vianet Group Inc (NASDAQ:VNET), G1 Therapeutics, Inc. (NASDAQ:GTHX), German American Bancorp., Inc. (NASDAQ:GABC), and Chatham Lodging Trust (NYSE:CLDT). All of these stocks’ market caps are closest to DBD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VNET | 12 | 48229 | -5 |
| GTHX | 14 | 48901 | 4 |
| GABC | 6 | 14967 | -1 |
| CLDT | 8 | 55426 | 0 |
| Average | 10 | 41881 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $165 million in DBD’s case. G1 Therapeutics, Inc. (NASDAQ:GTHX) is the most popular stock in this table. On the other hand German American Bancorp., Inc. (NASDAQ:GABC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Diebold Nixdorf Incorporated (NYSE:DBD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DBD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DBD were disappointed as the stock returned -35.1% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
