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 (see why hell is coming). 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 DXC Technology Company (NYSE:DXC) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is DXC Technology Company (NYSE:DXC) a buy here? The smart money was in a pessimistic mood. The number of bullish hedge fund positions decreased by 6 in recent months. Our calculations also showed that DXC 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). DXC was in 41 hedge funds’ portfolios at the end of March. There were 47 hedge funds in our database with DXC positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Alexander Roepers of Atlantic Investment Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the fresh hedge fund action encompassing DXC Technology Company (NYSE:DXC).
Hedge fund activity in DXC Technology Company (NYSE:DXC)
Heading into the second quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the fourth quarter of 2019. By comparison, 46 hedge funds held shares or bullish call options in DXC a year ago. So, let’s check 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, Glenview Capital, managed by Larry Robbins, holds the biggest position in DXC Technology Company (NYSE:DXC). Glenview Capital has a $143.4 million position in the stock, comprising 3.9% of its 13F portfolio. Coming in second is Lee Ainslie of Maverick Capital, with a $46.9 million position; the fund has 1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions encompass Alexander Roepers’s Atlantic Investment Management, Bill Miller’s Miller Value Partners and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Atlantic Investment Management allocated the biggest weight to DXC Technology Company (NYSE:DXC), around 19.3% of its 13F portfolio. Clearline Capital is also relatively very bullish on the stock, earmarking 6.26 percent of its 13F equity portfolio to DXC.
Because DXC Technology Company (NYSE:DXC) has faced bearish sentiment from the smart money, it’s easy to see that there is a sect of hedge funds that elected to cut their positions entirely last quarter. Interestingly, Doug Silverman and Alexander Klabin’s Senator Investment Group said goodbye to the biggest stake of the 750 funds monitored by Insider Monkey, totaling about $75.2 million in stock. James Parsons’s fund, Junto Capital Management, also sold off its stock, about $49.1 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 6 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as DXC Technology Company (NYSE:DXC) but similarly valued. These stocks are Vedanta Ltd (NYSE:VEDL), Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), ADT Inc. (NYSE:ADT), and Williams-Sonoma, Inc. (NYSE:WSM). This group of stocks’ market valuations resemble DXC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VEDL | 11 | 26697 | -2 |
| AJRD | 23 | 422895 | 2 |
| ADT | 20 | 98631 | -1 |
| WSM | 26 | 182192 | -3 |
| Average | 20 | 182604 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $183 million. That figure was $383 million in DXC’s case. Williams-Sonoma, Inc. (NYSE:WSM) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks DXC Technology Company (NYSE:DXC) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on DXC as the stock returned 26.4% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
