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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Dana Incorporated (NYSE:DAN).
Dana Incorporated (NYSE:DAN) investors should be aware of a decrease in activity from the world's largest hedge funds recently. Dana Incorporated (NYSE:DAN) was in 26 hedge funds' portfolios at the end of March. The all time high for this statistic is 28. Our calculations also showed that DAN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Carl Icahn of Icahn Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's take a glance at the recent hedge fund action surrounding Dana Incorporated (NYSE:DAN).
Do Hedge Funds Think DAN Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in DAN over the last 23 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Icahn Capital LP, managed by Carl Icahn, holds the largest position in Dana Incorporated (NYSE:DAN). Icahn Capital LP has a $292.8 million position in the stock, comprising 1.2% of its 13F portfolio. The second largest stake is held by Pzena Investment Management, managed by Richard S. Pzena, which holds a $82.2 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions consist of Mario Gabelli's GAMCO Investors, Dmitry Balyasny's Balyasny Asset Management and Chuck Royce's Royce & Associates. In terms of the portfolio weights assigned to each position Brightline Capital allocated the biggest weight to Dana Incorporated (NYSE:DAN), around 11.08% of its 13F portfolio. Elm Ridge Capital is also relatively very bullish on the stock, dishing out 2.3 percent of its 13F equity portfolio to DAN.
Due to the fact that Dana Incorporated (NYSE:DAN) has faced declining sentiment from the aggregate hedge fund industry, it's safe to say that there exists a select few fund managers that slashed their full holdings by the end of the first quarter. At the top of the heap, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors sold off the largest investment of the "upper crust" of funds followed by Insider Monkey, worth about $3.1 million in stock, and Alexander Mitchell's Scopus Asset Management was right behind this move, as the fund dropped about $2.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds by the end of the first quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Dana Incorporated (NYSE:DAN) but similarly valued. These stocks are CareDx, Inc. (NASDAQ:CDNA), Mantech International Corp (NASDAQ:MANT), Rogers Corporation (NYSE:ROG), Grocery Outlet Holding Corp. (NASDAQ:GO), Moelis & Company (NYSE:MC), Insmed Incorporated (NASDAQ:INSM), and Extended Stay America Inc (NYSE:STAY). This group of stocks' market values resemble DAN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CDNA,23,693239,3 MANT,14,34971,3 ROG,17,228144,-3 GO,15,56182,-2 MC,19,142103,-1 INSM,22,573375,-6 STAY,39,905852,16 Average,21.3,376267,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.3 hedge funds with bullish positions and the average amount invested in these stocks was $376 million. That figure was $546 million in DAN's case. Extended Stay America Inc (NYSE:STAY) is the most popular stock in this table. On the other hand Mantech International Corp (NASDAQ:MANT) is the least popular one with only 14 bullish hedge fund positions. Dana Incorporated (NYSE:DAN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DAN is 54.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and beat the market again by 6.7 percentage points. Unfortunately DAN wasn't nearly as popular as these 5 stocks and hedge funds that were betting on DAN were disappointed as the stock returned -5.1% since the end of March (through 7/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.