In this article we will take a look at whether hedge funds think China Distance Education Hldgs Ltd (NYSE:DL) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Hedge fund interest in China Distance Education Hldgs Ltd (NYSE:DL) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that DL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare DL to other stocks including AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG), Genesco Inc. (NYSE:GCO), and Craft Brew Alliance Inc (NASDAQ:BREW) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let's analyze the recent hedge fund action regarding China Distance Education Hldgs Ltd (NYSE:DL).
How are hedge funds trading China Distance Education Hldgs Ltd (NYSE:DL)?
At third quarter's end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2020. By comparison, 1 hedge funds held shares or bullish call options in DL a year ago. So, let's examine 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, Renaissance Technologies has the most valuable position in China Distance Education Hldgs Ltd (NYSE:DL), worth close to $5.9 million, comprising less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is GLG Partners, led by Noam Gottesman, holding a $0.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to China Distance Education Hldgs Ltd (NYSE:DL), around 0.01% of its 13F portfolio. GLG Partners is also relatively very bullish on the stock, setting aside 0.0011 percent of its 13F equity portfolio to DL.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's go over hedge fund activity in other stocks similar to China Distance Education Hldgs Ltd (NYSE:DL). These stocks are AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG), Genesco Inc. (NYSE:GCO), Craft Brew Alliance Inc (NASDAQ:BREW), Precision BioSciences, Inc. (NASDAQ:DTIL), Oportun Financial Corporation (NASDAQ:OPRT), Artesian Resources Corporation (NASDAQ:ARTNA), and Allied World Assurance Co Holdings, AG. (NYSE:AWH). All of these stocks' market caps match DL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMAG,11,139323,-3 GCO,13,21117,0 BREW,11,43900,-4 DTIL,14,13568,2 OPRT,5,2600,0 ARTNA,1,14960,0 AWH,4,10268,2 Average,8.4,35105,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.4 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $6 million in DL's case. Precision BioSciences, Inc. (NASDAQ:DTIL) is the most popular stock in this table. On the other hand Artesian Resources Corporation (NASDAQ:ARTNA) is the least popular one with only 1 bullish hedge fund positions. China Distance Education Hldgs Ltd (NYSE:DL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DL is 27.7. 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and surpassed the market again by 15.4 percentage points. Unfortunately DL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DL investors were disappointed as the stock returned -10.6% since the end of September (through 11/23) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.