As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about WildBrain Ltd. (NASDAQ:DHXM).
Hedge fund interest in WildBrain Ltd. (NASDAQ:DHXM) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Gain Capital Holdings Inc (NYSE:GCAP), Ideanomics, Inc. (NASDAQ:IDEX), and The Bank of Princeton (NASDAQ:BPRN) to gather more data points. Our calculations also showed that DHXM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_365194" align="aligncenter" width="450"] David E. Shaw of D.E. Shaw[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind we're going to take a glance at the latest hedge fund action encompassing WildBrain Ltd. (NASDAQ:DHXM).
How are hedge funds trading WildBrain Ltd. (NASDAQ:DHXM)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in DHXM over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Debra Fine's Fine Capital Partners has the most valuable position in WildBrain Ltd. (NASDAQ:DHXM), worth close to $56 million, accounting for 12.6% of its total 13F portfolio. Coming in second is Seth Fischer of Oasis Management, with a $0.9 million position; 0.6% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish comprise David E. Shaw's D E Shaw, Adam Wolfberg and Steven Landry's EastBay Asset Management and . In terms of the portfolio weights assigned to each position Fine Capital Partners allocated the biggest weight to WildBrain Ltd. (NASDAQ:DHXM), around 12.63% of its 13F portfolio. Oasis Management is also relatively very bullish on the stock, designating 0.59 percent of its 13F equity portfolio to DHXM.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. 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 Oasis Management).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as WildBrain Ltd. (NASDAQ:DHXM) but similarly valued. We will take a look at Gain Capital Holdings Inc (NYSE:GCAP), Ideanomics, Inc. (NASDAQ:IDEX), The Bank of Princeton (NASDAQ:BPRN), and Evelo Biosciences, Inc. (NASDAQ:EVLO). This group of stocks' market caps resemble DHXM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GCAP,9,21200,0 IDEX,1,23,-3 BPRN,2,14551,-1 EVLO,5,6105,3 Average,4.25,10470,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $57 million in DHXM's case. Gain Capital Holdings Inc (NYSE:GCAP) is the most popular stock in this table. On the other hand Ideanomics, Inc. (NASDAQ:IDEX) is the least popular one with only 1 bullish hedge fund positions. WildBrain Ltd. (NASDAQ:DHXM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DHXM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DHXM investors were disappointed as the stock returned -13% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.