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We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Ducommun Incorporated (NYSE:DCO) and determine whether hedge funds skillfully traded this stock.
Ducommun Incorporated (NYSE:DCO) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of March. 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 Matador Resources Co (NYSE:MTDR), CNB Financial Corporation (NASDAQ:CCNE), and Carriage Services, Inc. (NYSE:CSV) to gather more data points. Our calculations also showed that DCO 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 58 percentage points since March 2017 (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.
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Louis Navellier of Navellier & Associates[/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 go over the recent hedge fund action encompassing Ducommun Incorporated (NYSE:DCO).
How are hedge funds trading Ducommun Incorporated (NYSE:DCO)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in DCO a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Renaissance Technologies has the most valuable position in Ducommun Incorporated (NYSE:DCO), worth close to $12.6 million, accounting for less than 0.1%% of its total 13F portfolio. On Renaissance Technologies's heels is GAMCO Investors, managed by Mario Gabelli, which holds a $9.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Other peers with similar optimism consist of Chuck Royce's Royce & Associates, Israel Englander's Millennium Management and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to Ducommun Incorporated (NYSE:DCO), around 0.11% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.06 percent of its 13F equity portfolio to DCO.
Due to the fact that Ducommun Incorporated (NYSE:DCO) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of hedgies that elected to cut their positions entirely in the first quarter. At the top of the heap, Louis Navellier's Navellier & Associates cut the largest stake of all the hedgies monitored by Insider Monkey, valued at about $1.5 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund cut about $0.4 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Ducommun Incorporated (NYSE:DCO) but similarly valued. We will take a look at Matador Resources Co (NYSE:MTDR), CNB Financial Corporation (NASDAQ:CCNE), Carriage Services, Inc. (NYSE:CSV), and Harpoon Therapeutics, Inc. (NASDAQ:HARP). This group of stocks' market values resemble DCO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTDR,17,44417,-6 CCNE,6,20463,0 CSV,11,38774,-1 HARP,11,52011,3 Average,11.25,38916,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $39 million in DCO's case. Matador Resources Co (NYSE:MTDR) is the most popular stock in this table. On the other hand CNB Financial Corporation (NASDAQ:CCNE) is the least popular one with only 6 bullish hedge fund positions. Ducommun Incorporated (NYSE:DCO) is not the least popular stock in this group but hedge fund interest is still below average. 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 and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on DCO as the stock returned 40.3% during the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.