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Hedge Fund Consensus Stocks vs. Dell Technologies Inc. (DELL) In 2019

Abigail Fisher

Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Dell Technologies Inc. (NYSE:DELL).

Dell Technologies Inc. (NYSE:DELL) shareholders have witnessed an increase in hedge fund interest recently. DELL was in 45 hedge funds' portfolios at the end of the third quarter of 2019. There were 40 hedge funds in our database with DELL holdings at the end of the previous quarter. Our calculations also showed that DELL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In today’s marketplace there are numerous gauges market participants employ to value their holdings. Two of the less utilized gauges are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the best money managers can outpace the broader indices by a healthy margin (see the details here).

[caption id="attachment_26345" align="aligncenter" width="489"] Paul Singer of Elliott Management[/caption]

Paul Singer ELLIOTT MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to take a peek at the new hedge fund action surrounding Dell Technologies Inc. (NYSE:DELL).

What does smart money think about Dell Technologies Inc. (NYSE:DELL)?

At Q3's end, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DELL over the last 17 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in Dell Technologies Inc. (NYSE:DELL) was held by Elliott Management, which reported holding $674.2 million worth of stock at the end of September. It was followed by Canyon Capital Advisors with a $263.5 million position. Other investors bullish on the company included MSD Capital, First Pacific Advisors, and Lakewood Capital Management. In terms of the portfolio weights assigned to each position MSD Capital allocated the biggest weight to Dell Technologies Inc. (NYSE:DELL), around 76.32% of its 13F portfolio. HighVista Strategies is also relatively very bullish on the stock, designating 24.09 percent of its 13F equity portfolio to DELL.

As industrywide interest jumped, key hedge funds have been driving this bullishness. First Pacific Advisors, managed by Robert Rodriguez and Steven Romick, assembled the largest position in Dell Technologies Inc. (NYSE:DELL). First Pacific Advisors had $147 million invested in the company at the end of the quarter. David Rosen's Rubric Capital Management also made a $36.3 million investment in the stock during the quarter. The following funds were also among the new DELL investors: Mike Masters's Masters Capital Management, Brett Hendrickson's Nokomis Capital, and Paul Marshall and Ian Wace's Marshall Wace.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Dell Technologies Inc. (NYSE:DELL) but similarly valued. These stocks are Pinduoduo Inc. (NASDAQ:PDD), Delta Air Lines, Inc. (NYSE:DAL), Roper Technologies, Inc. (NYSE:ROP), and China Telecom Corporation Limited (NYSE:CHA). This group of stocks' market values match DELL's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PDD,30,1435122,1 DAL,65,6996617,-5 ROP,37,1044629,2 CHA,8,24410,1 Average,35,2375195,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $2375 million. That figure was $2444 million in DELL's case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 8 bullish hedge fund positions. Dell Technologies Inc. (NYSE:DELL) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately DELL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DELL were disappointed as the stock returned 3.3% in 2019 (through December 23rd) 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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