We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Dow Inc. (NYSE:DOW) and determine whether hedge funds skillfully traded this stock.
Dow Inc. (NYSE:DOW) was in 42 hedge funds’ portfolios at the end of September. The all time high for this statistic is 47. DOW shareholders have witnessed an increase in hedge fund interest in recent months. There were 40 hedge funds in our database with DOW holdings at the end of June. Our calculations also showed that DOW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to check out the latest hedge fund action regarding Dow Inc. (NYSE:DOW).
Richard S. Pzena of Pzena Investment Management
Do Hedge Funds Think DOW Is A Good Stock To Buy Now?
At the end of September, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DOW over the last 25 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Pzena Investment Management held the most valuable stake in Dow Inc. (NYSE:DOW), which was worth $357.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $105.7 million worth of shares. Renaissance Technologies, Millennium Management, and Masters Capital Management 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 Masters Capital Management allocated the biggest weight to Dow Inc. (NYSE:DOW), around 2.38% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, designating 1.42 percent of its 13F equity portfolio to DOW.
With a general bullishness amongst the heavyweights, some big names have jumped into Dow Inc. (NYSE:DOW) headfirst. Renaissance Technologies, established the most valuable position in Dow Inc. (NYSE:DOW). Renaissance Technologies had $96.1 million invested in the company at the end of the quarter. Mike Masters’s Masters Capital Management also initiated a $57.6 million position during the quarter. The other funds with brand new DOW positions are Thomas E. Claugus’s GMT Capital, Frank Fu’s CaaS Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s check out hedge fund activity in other stocks similar to Dow Inc. (NYSE:DOW). These stocks are Simon Property Group, Inc (NYSE:SPG), Microchip Technology Incorporated (NASDAQ:MCHP), Vodafone Group Plc (NASDAQ:VOD), Biogen Inc. (NASDAQ:BIIB), O’Reilly Automotive Inc (NASDAQ:ORLY), Cadence Design Systems Inc (NASDAQ:CDNS), and Roku, Inc. (NASDAQ:ROKU). This group of stocks’ market values are similar to DOW’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPG | 38 | 726426 | 1 |
| MCHP | 41 | 1122273 | -9 |
| VOD | 18 | 613771 | 1 |
| BIIB | 66 | 1923895 | -1 |
| ORLY | 44 | 2294006 | 0 |
| CDNS | 33 | 1922561 | 0 |
| ROKU | 57 | 2828579 | -4 |
| Average | 42.4 | 1633073 | -1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 42.4 hedge funds with bullish positions and the average amount invested in these stocks was $1633 million. That figure was $747 million in DOW’s case. Biogen Inc. (NASDAQ:BIIB) is the most popular stock in this table. On the other hand Vodafone Group Plc (NASDAQ:VOD) is the least popular one with only 18 bullish hedge fund positions. Dow Inc. (NYSE:DOW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DOW is 58.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on DOW as the stock returned 5% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.
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Disclosure: None. This article was originally published at Insider Monkey.
