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Are Hedge Funds Going To Get Burned By DuPont de Nemours Inc (DD) ?

Debasis Saha

Coronavirus is probably the #1 concern in investors' minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article we look at what those investors think of DuPont de Nemours Inc (NYSE:DD).

DuPont de Nemours Inc (NYSE:DD) was in 68 hedge funds' portfolios at the end of the fourth quarter of 2019. DD has seen an increase in support from the world's most elite money managers of late. There were 52 hedge funds in our database with DD holdings at the end of the previous quarter. Our calculations also showed that DD isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 41 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_26388" align="aligncenter" width="600"] Lee Ainslie of Maverick Capital[/caption]

Lee Ainslie MAVERICK CAPITAL

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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we're going to view the key hedge fund action regarding DuPont de Nemours Inc (NYSE:DD).

What have hedge funds been doing with DuPont de Nemours Inc (NYSE:DD)?

At the end of the fourth quarter, a total of 68 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DD over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DD A Good Stock To Buy?

The largest stake in DuPont de Nemours Inc (NYSE:DD) was held by Maverick Capital, which reported holding $458.6 million worth of stock at the end of September. It was followed by D E Shaw with a $310.9 million position. Other investors bullish on the company included Citadel Investment Group, Adage Capital Management, and Levin Easterly Partners. In terms of the portfolio weights assigned to each position Bodenholm Capital allocated the biggest weight to DuPont de Nemours Inc (NYSE:DD), around 43.15% of its 13F portfolio. 40 North Management is also relatively very bullish on the stock, earmarking 10.09 percent of its 13F equity portfolio to DD.

Consequently, specific money managers have been driving this bullishness. 40 North Management, managed by David S. Winter and David J. Millstone, assembled the biggest position in DuPont de Nemours Inc (NYSE:DD). 40 North Management had $142.8 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also made a $111.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Aaron Cowen's Suvretta Capital Management, David Rosen's Rubric Capital Management, and Daniel Lascano's Lomas Capital Management.

Let's go over hedge fund activity in other stocks similar to DuPont de Nemours Inc (NYSE:DD). These stocks are Kimberly Clark Corporation (NYSE:KMB), ING Groep N.V. (NYSE:ING), Metlife Inc (NYSE:MET), and American Electric Power Company, Inc. (NYSE:AEP). This group of stocks' market values match DD's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KMB,37,1058671,-5 ING,14,635357,4 MET,38,2371511,-1 AEP,34,1687802,-1 Average,30.75,1438335,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $1438 million. That figure was $2372 million in DD's case. Metlife Inc (NYSE:MET) is the most popular stock in this table. On the other hand ING Groep N.V. (NYSE:ING) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks DuPont de Nemours Inc (NYSE:DD) is more popular among hedge funds. 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 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately DD wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DD were disappointed as the stock returned -29.5% during the first two months of 2020 (through March 2nd) 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 most of these stocks already outperformed the market in Q1.

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

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