Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Diebold Nixdorf Incorporated (NYSE:DBD).
Diebold Nixdorf Incorporated (NYSE:DBD) was in 15 hedge funds' portfolios at the end of the second quarter of 2019. DBD shareholders have witnessed a decrease in enthusiasm from smart money in recent months. There were 18 hedge funds in our database with DBD holdings at the end of the previous quarter. Our calculations also showed that DBD isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to review the key hedge fund action regarding Diebold Nixdorf Incorporated (NYSE:DBD).
What does smart money think about Diebold Nixdorf Incorporated (NYSE:DBD)?
Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in DBD a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Diebold Nixdorf Incorporated (NYSE:DBD) was held by GAMCO Investors, which reported holding $52.1 million worth of stock at the end of March. It was followed by Ancora Advisors with a $22.2 million position. Other investors bullish on the company included Prescott Group Capital Management, D E Shaw, and Brigade Capital.
Judging by the fact that Diebold Nixdorf Incorporated (NYSE:DBD) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few hedgies that decided to sell off their entire stakes last quarter. At the top of the heap, Alexander Roepers's Atlantic Investment Management cut the largest position of the 750 funds watched by Insider Monkey, comprising about $5.5 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund said goodbye to about $1.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Diebold Nixdorf Incorporated (NYSE:DBD). We will take a look at Tutor Perini Corporation (NYSE:TPC), United Financial Bancorp, Inc. (NASDAQ:UBNK), Capstead Mortgage Corporation (NYSE:CMO), and Monotype Imaging Holdings Inc. (NASDAQ:TYPE). This group of stocks' market values resemble DBD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TPC,6,8759,-6 UBNK,9,70766,1 CMO,9,26655,1 TYPE,19,172272,-2 Average,10.75,69613,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $129 million in DBD's case. Monotype Imaging Holdings Inc. (NASDAQ:TYPE) is the most popular stock in this table. On the other hand Tutor Perini Corporation (NYSE:TPC) is the least popular one with only 6 bullish hedge fund positions. Diebold Nixdorf Incorporated (NYSE:DBD) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on DBD as the stock returned 22.3% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.