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DRDGOLD Ltd. (DRD) Fell Out Of Favor With Hedge Funds?

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In this article you are going to find out whether hedge funds think DRDGOLD Ltd. (NYSE:DRD) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

DRDGOLD Ltd. (NYSE:DRD) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds' portfolios at the end of the first quarter of 2021. Our calculations also showed that DRD isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). 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 CleanSpark, Inc. (NASDAQ:CLSK), Brightcove Inc (NASDAQ:BCOV), and ADTRAN, Inc. (NASDAQ:ADTN) to gather more data points.

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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

AQR CAPITAL MANAGEMENT
AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $23 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to analyze the new hedge fund action encompassing DRDGOLD Ltd. (NYSE:DRD).

Do Hedge Funds Think DRD Is A Good Stock To Buy Now?

At the end of March, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DRD over the last 23 quarters. So, let's review 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 biggest position in DRDGOLD Ltd. (NYSE:DRD), worth close to $10.5 million, accounting for less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is AQR Capital Management, led by Cliff Asness, holding a $5.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish consist of Ken Griffin's Citadel Investment Group, and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to DRDGOLD Ltd. (NYSE:DRD), around 0.01% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to DRD.

Seeing as DRDGOLD Ltd. (NYSE:DRD) has faced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of fund managers that elected to cut their full holdings last quarter. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the biggest position of all the hedgies monitored by Insider Monkey, totaling an estimated $1.8 million in stock. Richard Driehaus's fund, Driehaus Capital, also cut its stock, about $1 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as DRDGOLD Ltd. (NYSE:DRD) but similarly valued. We will take a look at CleanSpark, Inc. (NASDAQ:CLSK), Brightcove Inc (NASDAQ:BCOV), ADTRAN, Inc. (NASDAQ:ADTN), Organigram Holdings Inc. (NASDAQ:OGI), Boston Omaha Corporation (NASDAQ:BOMN), Franks International NV (NYSE:FI), and Varex Imaging Corporation (NASDAQ:VREX). All of these stocks' market caps resemble DRD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CLSK,8,33086,3 BCOV,21,292077,-1 ADTN,10,75318,-1 OGI,9,15213,5 BOMN,2,301026,-1 FI,9,7836,0 VREX,22,114801,3 Average,11.6,119908,1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.6 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $17 million in DRD's case. Varex Imaging Corporation (NASDAQ:VREX) is the most popular stock in this table. On the other hand Boston Omaha Corporation (NASDAQ:BOMN) is the least popular one with only 2 bullish hedge fund positions. DRDGOLD Ltd. (NYSE:DRD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DRD is 29.2. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. A small number of hedge funds were also right about betting on DRD as the stock returned 12.8% since the end of the first quarter (through 6/18) and outperformed the market by an even larger margin.

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

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