"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That's why we believe it would be worthwhile to take a look at the hedge fund sentiment on Dropbox, Inc. (NASDAQ:DBX) in order to identify whether reputable and successful top money managers continue to believe in its potential.
Dropbox, Inc. (NASDAQ:DBX) shareholders have witnessed a decrease in activity from the world's largest hedge funds recently. DBX was in 38 hedge funds' portfolios at the end of the third quarter of 2019. There were 43 hedge funds in our database with DBX positions at the end of the previous quarter. Our calculations also showed that DBX 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.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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_674067" align="aligncenter" width="473"] Gil Simon of SoMa Equity Partners[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to check out the recent hedge fund action surrounding Dropbox, Inc. (NASDAQ:DBX).
What does smart money think about Dropbox, Inc. (NASDAQ:DBX)?
At Q3's end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DBX over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Dropbox, Inc. (NASDAQ:DBX) was held by Renaissance Technologies, which reported holding $230.3 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $139.2 million position. Other investors bullish on the company included SoMa Equity Partners, D E Shaw, and Southpoint Capital Advisors. In terms of the portfolio weights assigned to each position SoMa Equity Partners allocated the biggest weight to Dropbox, Inc. (NASDAQ:DBX), around 7.13% of its portfolio. Hunt Lane Capital is also relatively very bullish on the stock, setting aside 6.76 percent of its 13F equity portfolio to DBX.
Because Dropbox, Inc. (NASDAQ:DBX) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of funds that slashed their entire stakes heading into Q4. At the top of the heap, Anand Parekh's Alyeska Investment Group dumped the biggest investment of all the hedgies followed by Insider Monkey, totaling about $58.5 million in stock. Brian Ashford-Russell and Tim Woolley's fund, Polar Capital, also said goodbye to its stock, about $43.3 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 5 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Dropbox, Inc. (NASDAQ:DBX) but similarly valued. These stocks are AEGON N.V. (NYSE:AEG), Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), and Carlisle Companies, Inc. (NYSE:CSL). All of these stocks' market caps are similar to DBX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AEG,6,25903,-3 AVAL,7,17609,0 NBIX,42,1101616,8 CSL,30,454941,5 Average,21.25,400017,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $400 million. That figure was $978 million in DBX's case. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is the most popular stock in this table. On the other hand AEGON N.V. (NYSE:AEG) is the least popular one with only 6 bullish hedge fund positions. Dropbox, Inc. (NASDAQ:DBX) 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 DBX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DBX were disappointed as the stock returned -8.3% 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.