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Did Hedge Funds Drop The Ball On On Dana Incorporated (DAN) ?

Nina Todic

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Dana Incorporated (NYSE:DAN) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Dana Incorporated (NYSE:DAN) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 28 hedge funds' portfolios at the end of the fourth quarter of 2018. At the end of this article we will also compare DAN to other stocks including Imperva Inc (NYSE:IMPV), Otter Tail Corporation (NASDAQ:OTTR), and MyoKardia, Inc. (NASDAQ:MYOK) to get a better sense of its popularity.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.

Mario Gabelli with cereal box

We're going to take a look at the recent hedge fund action encompassing Dana Incorporated (NYSE:DAN).

How have hedgies been trading Dana Incorporated (NYSE:DAN)?

At Q4's end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DAN over the last 14 quarters. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with DAN Positions

Among these funds, Anchor Bolt Capital held the most valuable stake in Dana Incorporated (NYSE:DAN), which was worth $54.1 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $50.4 million worth of shares. Moreover, D E Shaw, Citadel Investment Group, and Precision Path Capital were also bullish on Dana Incorporated (NYSE:DAN), allocating a large percentage of their portfolios to this stock.

Due to the fact that Dana Incorporated (NYSE:DAN) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few fund managers who were dropping their positions entirely last quarter. Interestingly, Anand Parekh's Alyeska Investment Group dumped the biggest stake of all the hedgies watched by Insider Monkey, valued at about $10.2 million in stock, and Gregg Moskowitz's Interval Partners was right behind this move, as the fund said goodbye to about $6.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Dana Incorporated (NYSE:DAN) but similarly valued. We will take a look at Imperva Inc (NYSE:IMPV), Otter Tail Corporation (NASDAQ:OTTR), MyoKardia, Inc. (NASDAQ:MYOK), and Zuora, Inc. (NYSE:ZUO). All of these stocks' market caps resemble DAN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IMPV,27,543478,-2 OTTR,12,70971,3 MYOK,22,481719,0 ZUO,14,69393,-1 Average,18.75,291390,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $291 million. That figure was $279 million in DAN's case. Imperva Inc (NYSE:IMPV) is the most popular stock in this table. On the other hand Otter Tail Corporation (NASDAQ:OTTR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Dana Incorporated (NYSE:DAN) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on DAN as the stock returned 48% 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.

Disclosure: None. This article was originally published at Insider Monkey.

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