At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards DLH Holdings Corp. (NASDAQ:DLHC).
DLH Holdings Corp. (NASDAQ:DLHC) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of the first quarter of 2020. 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 Fauquier Bankshares, Inc. (NASDAQ:FBSS), Select Interior Concepts, Inc. (NASDAQ:SIC), and Alpine Immune Sciences, Inc. (NASDAQ:ALPN) to gather more data points. Our calculations also showed that DLHC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: 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’ 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Nelson Obus of Wynnefield Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the fresh hedge fund action surrounding DLH Holdings Corp. (NASDAQ:DLHC).
Hedge fund activity in DLH Holdings Corp. (NASDAQ:DLHC)
Heading into the second quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DLHC over the last 18 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.
More specifically, Wynnefield Capital was the largest shareholder of DLH Holdings Corp. (NASDAQ:DLHC), with a stake worth $16.2 million reported as of the end of September. Trailing Wynnefield Capital was Cove Street Capital, which amassed a stake valued at $1.5 million. Renaissance Technologies, Minerva Advisors, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Wynnefield Capital allocated the biggest weight to DLH Holdings Corp. (NASDAQ:DLHC), around 15.36% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, designating 0.32 percent of its 13F equity portfolio to DLHC.
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 first quarter, there weren’t any hedge funds initiating brand new positions. 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 check out hedge fund activity in other stocks similar to DLH Holdings Corp. (NASDAQ:DLHC). We will take a look at Fauquier Bankshares, Inc. (NASDAQ:FBSS), Select Interior Concepts, Inc. (NASDAQ:SIC), Alpine Immune Sciences, Inc. (NASDAQ:ALPN), and Aridis Pharmaceuticals Inc. (NASDAQ:ARDS). This group of stocks’ market values match DLHC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FBSS | 2 | 5892 | 0 |
| SIC | 14 | 9463 | -3 |
| ALPN | 5 | 22035 | -2 |
| ARDS | 1 | 60 | 0 |
| Average | 5.5 | 9363 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $19 million in DLHC’s case. Select Interior Concepts, Inc. (NASDAQ:SIC) is the most popular stock in this table. On the other hand Aridis Pharmaceuticals Inc. (NASDAQ:ARDS) is the least popular one with only 1 bullish hedge fund positions. DLH Holdings Corp. (NASDAQ:DLHC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on DLHC as the stock returned 108.3% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
