What Do Hedge Funds Think of Dynegy Inc. (DYN)?

Concerns over a shift in Fed’s easy monetary policy have hit several hedge funds hard during the third quarter. A number of sectors are in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points between June 25, 2015 and October 30, 2015. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Dynegy Inc. (NYSE:DYN).

Is Dynegy Inc. (NYSE:DYN) a bargain? Investors who are in the know are in a bearish mood. The number of long hedge fund positions fell by 12 recently. 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 Cal-Maine Foods Inc (NASDAQ:CALM), International Game Technology (NYSE:IGT), and The Cheesecake Factory Incorporated (NASDAQ:CAKE) to gather more data points.

If you’d ask most investors, hedge funds are perceived as slow, outdated investment tools of the past. While there are more than an 8000 funds with their doors open at present, Our experts hone in on the top tier of this club, approximately 700 funds. These money managers command bulk of the smart money’s total capital, and by paying attention to their top investments, Insider Monkey has revealed a number of investment strategies that have historically outpaced the broader indices. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Now, let’s take a peek at the fresh action surrounding Dynegy Inc. (NYSE:DYN).

What does the smart money think about Dynegy Inc. (NYSE:DYN)?

At the end of the third quarter, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Oaktree Capital Management, managed by Howard Marks, holds the biggest position in Dynegy Inc. (NYSE:DYN). Oaktree Capital Management has a $203.4 million position in the stock, comprising 2.7% of its 13F portfolio. Coming in second is D E Shaw, which holds a $117.2 million position; 0.2% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions consist of Jonathan Barrett and Paul Segal’s Luminus Management, Clint Carlson’s Carlson Capital and Israel Englander’s Millennium Management.

Due to the fact that Dynegy Inc. (NYSE:DYN) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there was a specific group of funds that elected to cut their entire stakes heading into Q4. Interestingly, Bain Capital’s Brookside Capital dropped the largest stake of all the hedgies followed by Insider Monkey, worth close to $120.1 million in call options, and Mark Weissman, Adam Cohen and David Coleto’s Caspian Capital Partners was right behind this move, as the fund said goodbye to about $41.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 12 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Dynegy Inc. (NYSE:DYN). These stocks are Cal-Maine Foods Inc (NASDAQ:CALM), International Game Technology (NYSE:IGT), The Cheesecake Factory Incorporated (NASDAQ:CAKE), and Companhia de Saneamento Basico (ADR) (NYSE:SBS). This group of stocks’ market valuations match DYN’s market valuation.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $1175 million in DYN’s case. Cal-Maine Foods Inc (NASDAQ:CALM) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico (ADR) (NYSE:SBS) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Dynegy Inc. (NYSE:DYN) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.