At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards DHI Group Inc. (NYSE:DHX).
DHI Group Inc. (NYSE:DHX) investors should be aware of a decrease in activity from the world's largest hedge funds lately. DHX was in 15 hedge funds' portfolios at the end of March. There were 16 hedge funds in our database with DHX positions at the end of the previous quarter. Our calculations also showed that DHX 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_845793" align="aligncenter" width="394"] Peter Rathjens of Arrowstreet Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to view the new hedge fund action regarding DHI Group Inc. (NYSE:DHX).
What does smart money think about DHI Group Inc. (NYSE:DHX)?
At Q1's end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in DHX a year ago. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, Nantahala Capital Management held the most valuable stake in DHI Group Inc. (NYSE:DHX), which was worth $10.2 million at the end of the third quarter. On the second spot was Archon Capital Management which amassed $8.3 million worth of shares. Renaissance Technologies, D E Shaw, and Arrowstreet Capital 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 Archon Capital Management allocated the biggest weight to DHI Group Inc. (NYSE:DHX), around 3.07% of its 13F portfolio. Nantahala Capital Management is also relatively very bullish on the stock, setting aside 0.38 percent of its 13F equity portfolio to DHX.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace LLP. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified DHX as a viable investment and initiated a position in the stock.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as DHI Group Inc. (NYSE:DHX) but similarly valued. We will take a look at Marrone Bio Innovations Inc (NASDAQ:MBII), Vericity, Inc. (NASDAQ:VERY), Matinas Biopharma Holdings, Inc. (NYSE:MTNB), and Tuanche Limited (NASDAQ:TC). This group of stocks' market values match DHX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MBII,3,10002,1 VERY,1,688,0 MTNB,8,10819,1 TC,1,33,0 Average,3.25,5386,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.25 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $30 million in DHX's case. Matinas Biopharma Holdings, Inc. (NYSE:MTNB) is the most popular stock in this table. On the other hand Vericity, Inc. (NASDAQ:VERY) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks DHI Group Inc. (NYSE:DHX) is more popular among hedge funds. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately DHX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on DHX were disappointed as the stock returned -2.8% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.