Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is Daktronics, Inc. (NASDAQ:DAKT) the right investment to pursue these days? Prominent investors are turning bullish. The number of long hedge fund positions improved by 5 recently. Our calculations also showed that DAKT 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_728717" align="aligncenter" width="473"] Roger Ibbotson of Zebra Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to review the latest hedge fund action regarding Daktronics, Inc. (NASDAQ:DAKT).
How are hedge funds trading Daktronics, Inc. (NASDAQ:DAKT)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 56% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DAKT over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Daktronics, Inc. (NASDAQ:DAKT), with a stake worth $9.5 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $3.8 million. D E Shaw, Citadel Investment Group, and Two Sigma Advisors 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 Algert Coldiron Investors allocated the biggest weight to Daktronics, Inc. (NASDAQ:DAKT), around 0.15% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.12 percent of its 13F equity portfolio to DAKT.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Algert Coldiron Investors, managed by Peter Algert and Kevin Coldiron, created the most outsized position in Daktronics, Inc. (NASDAQ:DAKT). Algert Coldiron Investors had $0.4 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also initiated a $0.3 million position during the quarter. The other funds with brand new DAKT positions are Peter Muller's PDT Partners, Roger Ibbotson's Zebra Capital Management, and Paul Marshall and Ian Wace's Marshall Wace.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Daktronics, Inc. (NASDAQ:DAKT) but similarly valued. We will take a look at Rafael Holdings, Inc. (NYSE:RFL), CRA International, Inc. (NASDAQ:CRAI), Neptune Wellness Solutions Inc (NASDAQ:NEPT), and GTY Technology Holdings, Inc. (NASDAQ:GTYH). This group of stocks' market valuations match DAKT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RFL,6,40913,0 CRAI,15,45421,1 NEPT,7,49362,-1 GTYH,4,19976,0 Average,8,38918,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $22 million in DAKT's case. CRA International, Inc. (NASDAQ:CRAI) is the most popular stock in this table. On the other hand GTY Technology Holdings, Inc. (NASDAQ:GTYH) is the least popular one with only 4 bullish hedge fund positions. Daktronics, Inc. (NASDAQ:DAKT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 DAKT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DAKT were disappointed as the stock returned -16.6% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.