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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Dynex Capital Inc (NYSE:DX) in this article.
Is DX a good stock to buy now? The best stock pickers were becoming more confident. The number of bullish hedge fund positions advanced by 4 lately. Dynex Capital Inc (NYSE:DX) was in 8 hedge funds' portfolios at the end of September. The all time high for this statistics is 11. Our calculations also showed that DX isn't among the 30 most popular stocks among hedge funds (click for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Matthew Hulsizer of PEAK6 Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 website. Now let's go over the latest hedge fund action surrounding Dynex Capital Inc (NYSE:DX).
Hedge fund activity in Dynex Capital Inc (NYSE:DX)
Heading into the fourth quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 100% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DX over the last 21 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Winton Capital Management held the most valuable stake in Dynex Capital Inc (NYSE:DX), which was worth $2.5 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $2.3 million worth of shares. D E Shaw, PEAK6 Capital Management, and Renaissance Technologies 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 Winton Capital Management allocated the biggest weight to Dynex Capital Inc (NYSE:DX), around 0.08% of its 13F portfolio. Paloma Partners is also relatively very bullish on the stock, earmarking 0.0041 percent of its 13F equity portfolio to DX.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in Dynex Capital Inc (NYSE:DX). Arrowstreet Capital had $2.3 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $0.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace's Marshall Wace LLP, John Overdeck and David Siegel's Two Sigma Advisors, and Donald Sussman's Paloma Partners.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Dynex Capital Inc (NYSE:DX) but similarly valued. We will take a look at MRC Global Inc (NYSE:MRC), MEI Pharma Inc (NASDAQ:MEIP), AC Immune SA (NASDAQ:ACIU), MBIA Inc. (NYSE:MBI), Oceaneering International (NYSE:OII), Miller Industries, Inc. (NYSE:MLR), and Merus N.V. (NASDAQ:MRUS). This group of stocks' market caps match DX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MRC,18,26533,0 MEIP,16,59453,-4 ACIU,11,61021,1 MBI,16,65059,0 OII,18,30144,1 MLR,11,55092,1 MRUS,13,120093,-2 Average,14.7,59628,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.7 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $8 million in DX's case. MRC Global Inc (NYSE:MRC) is the most popular stock in this table. On the other hand AC Immune SA (NASDAQ:ACIU) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Dynex Capital Inc (NYSE:DX) is even less popular than ACIU. Our overall hedge fund sentiment score for DX is 30.8. 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. Hedge funds clearly dropped the ball on DX as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. A small number of hedge funds were also right about betting on DX as the stock returned 18.5% since Q3 (through December 2nd) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.