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 at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded DIRTT Environmental Solutions Ltd. (NASDAQ:DRTT) and determine whether the smart money was really smart about this stock.
Is DIRTT Environmental Solutions Ltd. (NASDAQ:DRTT) the right pick for your portfolio? The smart money was turning less bullish. The number of long hedge fund bets fell by 2 recently. Our calculations also showed that DRTT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_687238" align="aligncenter" width="400"] Philip Hempleman of Ardsley Partners[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's take a gander at the new hedge fund action encompassing DIRTT Environmental Solutions Ltd. (NASDAQ:DRTT).
What does smart money think about DIRTT Environmental Solutions Ltd. (NASDAQ:DRTT)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in DRTT over the last 18 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, MAK Capital One held the most valuable stake in DIRTT Environmental Solutions Ltd. (NASDAQ:DRTT), which was worth $8.1 million at the end of the third quarter. On the second spot was Private Capital Management which amassed $5 million worth of shares. Harbert Management, Invenomic Capital Management, and D E Shaw 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 MAK Capital One allocated the biggest weight to DIRTT Environmental Solutions Ltd. (NASDAQ:DRTT), around 7.11% of its 13F portfolio. Harbert Management is also relatively very bullish on the stock, designating 3.04 percent of its 13F equity portfolio to DRTT.
Since DIRTT Environmental Solutions Ltd. (NASDAQ:DRTT) has faced a decline in interest from the smart money, logic holds that there were a few funds that slashed their positions entirely last quarter. At the top of the heap, Philip Hempleman's Ardsley Partners said goodbye to the largest stake of all the hedgies tracked by Insider Monkey, worth an estimated $2.9 million in stock. Seth Fischer's fund, Oasis Management, also said goodbye to its stock, about $0.3 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds last quarter.
Let's check out hedge fund activity in other stocks similar to DIRTT Environmental Solutions Ltd. (NASDAQ:DRTT). We will take a look at Aravive, Inc. (NASDAQ:ARAV), A-Mark Precious Metals, Inc. (NASDAQ:AMRK), The Lovesac Company (NASDAQ:LOVE), and Reading International, Inc. (NASDAQ:RDI). All of these stocks' market caps are closest to DRTT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARAV,6,10926,-3 AMRK,4,1476,1 LOVE,7,6858,0 RDI,12,10016,1 Average,7.25,7319,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $16 million in DRTT's case. Reading International, Inc. (NASDAQ:RDI) is the most popular stock in this table. On the other hand A-Mark Precious Metals, Inc. (NASDAQ:AMRK) is the least popular one with only 4 bullish hedge fund positions. DIRTT Environmental Solutions Ltd. (NASDAQ:DRTT) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately DRTT wasn't nearly as popular as these 10 stocks and hedge funds that were betting on DRTT were disappointed as the stock returned 18.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.