Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by more than 6 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Drive Shack Inc. (NYSE:DS).
Hedge fund interest in Drive Shack Inc. (NYSE:DS) 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 DS to other stocks including Cumulus Media Inc (NASDAQ:CMLS), Vectrus Inc (NYSE:VEC), and Marker Therapeutics, Inc. (NASDAQ:MRKR) to get a better sense of its popularity.
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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to review the key hedge fund action encompassing Drive Shack Inc. (NYSE:DS).
How have hedgies been trading Drive Shack Inc. (NYSE:DS)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in DS a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Sheffield Asset Management was the largest shareholder of Drive Shack Inc. (NYSE:DS), with a stake worth $1.9 million reported as of the end of March. Trailing Sheffield Asset Management was Renaissance Technologies, which amassed a stake valued at $0.8 million. D E Shaw, Trafelet Capital, and Arrowstreet Capital 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: Levin Capital Strategies. 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 Winton Capital Management).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Drive Shack Inc. (NYSE:DS) but similarly valued. These stocks are Cumulus Media Inc (NASDAQ:CMLS), Vectrus Inc (NYSE:VEC), Marker Therapeutics, Inc. (NASDAQ:MRKR), and Tile Shop Holdings, Inc. (NASDAQ:TTS). This group of stocks’ market valuations resemble DS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMLS | 13 | 109777 | 6 |
| VEC | 11 | 40168 | 1 |
| MRKR | 10 | 36537 | 2 |
| TTS | 8 | 19047 | -2 |
| Average | 10.5 | 51382 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $5 million in DS’s case. Cumulus Media Inc (NASDAQ:CMLS) is the most popular stock in this table. On the other hand Tile Shop Holdings, Inc. (NASDAQ:TTS) is the least popular one with only 8 bullish hedge fund positions. Drive Shack Inc. (NYSE:DS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on DS as the stock returned 7.1% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.