Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Dyadic International, Inc. (NASDAQ:DYAI).
Is Dyadic International, Inc. (NASDAQ:DYAI) a buy, sell, or hold? Money managers are getting less bullish. The number of bullish hedge fund bets were cut by 1 lately. Our calculations also showed that DYAI isn't among the 30 most popular stocks among hedge funds. DYAI was in 2 hedge funds' portfolios at the end of the third quarter of 2019. There were 3 hedge funds in our database with DYAI positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/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 take a look at the key hedge fund action encompassing Dyadic International, Inc. (NASDAQ:DYAI).
What does smart money think about Dyadic International, Inc. (NASDAQ:DYAI)?
At Q3's end, a total of 2 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the second quarter of 2019. By comparison, 0 hedge funds held shares or bullish call options in DYAI a year ago. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
The largest stake in Dyadic International, Inc. (NASDAQ:DYAI) was held by Bandera Partners, which reported holding $6.1 million worth of stock at the end of September. It was followed by Marshall Wace with a $0.1 million position.
Because Dyadic International, Inc. (NASDAQ:DYAI) has faced declining sentiment from the smart money, it's easy to see that there were a few hedge funds who were dropping their full holdings by the end of the third quarter. Interestingly, Israel Englander's Millennium Management said goodbye to the largest stake of all the hedgies followed by Insider Monkey, worth about $0.2 million in stock, and Renaissance Technologies was right behind this move, as the fund cut about $0.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Dyadic International, Inc. (NASDAQ:DYAI) but similarly valued. We will take a look at Anavex Life Sciences Corp. (NASDAQ:AVXL), Mackinac Financial Corporation (NASDAQ:MFNC), Vapotherm, Inc. (NYSE:VAPO), and Calithera Biosciences Inc (NASDAQ:CALA). This group of stocks' market caps match DYAI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVXL,4,13051,-1 MFNC,5,13964,1 VAPO,8,43104,2 CALA,12,34142,-3 Average,7.25,26065,-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 $26 million. That figure was $6 million in DYAI's case. Calithera Biosciences Inc (NASDAQ:CALA) is the most popular stock in this table. On the other hand Anavex Life Sciences Corp. (NASDAQ:AVXL) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Dyadic International, Inc. (NASDAQ:DYAI) is even less popular than AVXL. Hedge funds dodged a bullet by taking a bearish stance towards DYAI. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately DYAI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DYAI investors were disappointed as the stock returned -5.4% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.