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"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That's why we believe it would be worthwhile to take a look at the hedge fund sentiment on Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) in order to identify whether reputable and successful top money managers continue to believe in its potential.
Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) shareholders have witnessed an increase in hedge fund interest lately. DHIL was in 15 hedge funds' portfolios at the end of the third quarter of 2019. There were 14 hedge funds in our database with DHIL holdings at the end of the previous quarter. Our calculations also showed that DHIL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30621" align="aligncenter" width="487"]
Cliff Asness of AQR Capital Management[/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. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the recent hedge fund action regarding Diamond Hill Investment Group, Inc. (NASDAQ:DHIL).
What have hedge funds been doing with Diamond Hill Investment Group, Inc. (NASDAQ:DHIL)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DHIL over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Diamond Hill Investment Group, Inc. (NASDAQ:DHIL), with a stake worth $19.9 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $6.6 million. Millennium Management, AQR Capital Management, and Osmium Partners 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 Osmium Partners allocated the biggest weight to Diamond Hill Investment Group, Inc. (NASDAQ:DHIL), around 3.09% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, designating 0.35 percent of its 13F equity portfolio to DHIL.
Consequently, some big names have been driving this bullishness. PEAK6 Capital Management, managed by Matthew Hulsizer, established the largest position in Diamond Hill Investment Group, Inc. (NASDAQ:DHIL). PEAK6 Capital Management had $1.7 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also initiated a $0.8 million position during the quarter. The only other fund with a brand new DHIL position is David E. Shaw's D E Shaw.
Let's go over hedge fund activity in other stocks similar to Diamond Hill Investment Group, Inc. (NASDAQ:DHIL). These stocks are American Vanguard Corp. (NYSE:AVD), NRC Group Holdings Corp. (NYSE:NRCG), Napco Security Technologies Inc (NASDAQ:NSSC), and Waterstone Financial, Inc. (NASDAQ:WSBF). All of these stocks' market caps are similar to DHIL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVD,8,27502,-3 NRCG,13,17546,5 NSSC,11,22143,6 WSBF,17,79862,2 Average,12.25,36763,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $46 million in DHIL's case. Waterstone Financial, Inc. (NASDAQ:WSBF) is the most popular stock in this table. On the other hand American Vanguard Corp. (NYSE:AVD) is the least popular one with only 8 bullish hedge fund positions. Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DHIL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DHIL were disappointed as the stock returned 5.4% during the fourth quarter (through the end of November) 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.
Disclosure: None. This article was originally published at Insider Monkey.