Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Dynex Capital Inc (NYSE:DX) based on that data.
Dynex Capital Inc (NYSE:DX) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 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 The First Bancorp, Inc. (NASDAQ:FNLC), Park-Ohio Holdings Corp. (NASDAQ:PKOH), and Lithium Americas Corp. (NYSE:LAC) to gather more data points. Our calculations also showed that DX 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.
[caption id="attachment_746893" align="aligncenter" width="392"] Paul Marshall of Marshall Wace[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. With all of this in mind let's take a peek at the key hedge fund action surrounding Dynex Capital Inc (NYSE:DX).
What does smart money think about Dynex Capital Inc (NYSE:DX)?
Heading into the second quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DX over the last 18 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of Dynex Capital Inc (NYSE:DX), with a stake worth $4 million reported as of the end of September. Trailing Citadel Investment Group was Winton Capital Management, which amassed a stake valued at $2.7 million. Marshall Wace LLP, D E Shaw, and Tudor Investment Corp 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 0.07% of its 13F portfolio. Ellington is also relatively very bullish on the stock, dishing out 0.04 percent of its 13F equity portfolio to DX.
Due to the fact that Dynex Capital Inc (NYSE:DX) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there exists a select few money managers that decided to sell off their full holdings by the end of the first quarter. Intriguingly, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors cut the largest position of all the hedgies tracked by Insider Monkey, totaling close to $0.5 million in stock. Donald Sussman's fund, Paloma Partners, also sold off its stock, about $0.3 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review 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 The First Bancorp, Inc. (NASDAQ:FNLC), Park-Ohio Holdings Corp. (NASDAQ:PKOH), Lithium Americas Corp. (NYSE:LAC), and Zix Corporation (NASDAQ:ZIXI). This group of stocks' market values match DX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FNLC,1,4787,0 PKOH,6,18429,-6 LAC,3,1097,-1 ZIXI,15,32028,-1 Average,6.25,14085,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $14 million. That figure was $8 million in DX's case. Zix Corporation (NASDAQ:ZIXI) is the most popular stock in this table. On the other hand The First Bancorp, Inc. (NASDAQ:FNLC) is the least popular one with only 1 bullish hedge fund positions. Dynex Capital Inc (NYSE:DX) is not the most popular stock in this group but hedge fund interest is still above 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 12.2% in 2020 through June 17th but still beat the market by 14.8 percentage points. Hedge funds were also right about betting on DX as the stock returned 43.6% in Q2 (through June 17th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.