We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Dorian LPG Ltd (NYSE:LPG).
Dorian LPG Ltd (NYSE:LPG) investors should pay attention to an increase in hedge fund interest of late. LPG was in 19 hedge funds' portfolios at the end of September. There were 10 hedge funds in our database with LPG holdings at the end of the previous quarter. Our calculations also showed that LPG 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.
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 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 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_735641" align="aligncenter" width="473"] Michael Lowenstein of Kensico Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's take a look at the key hedge fund action encompassing Dorian LPG Ltd (NYSE:LPG).
How are hedge funds trading Dorian LPG Ltd (NYSE:LPG)?
At Q3's end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 90% from the second quarter of 2019. On the other hand, there were a total of 6 hedge funds with a bullish position in LPG 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.
When looking at the institutional investors followed by Insider Monkey, Michael Lowenstein's Kensico Capital has the biggest position in Dorian LPG Ltd (NYSE:LPG), worth close to $83 million, amounting to 1.6% of its total 13F portfolio. The second most bullish fund manager is Royce & Associates, led by Chuck Royce, holding a $22.1 million position; 0.2% of its 13F portfolio is allocated to the stock. Other peers that hold long positions include Ken Griffin's Citadel Investment Group, Renaissance Technologies and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Kensico Capital allocated the biggest weight to Dorian LPG Ltd (NYSE:LPG), around 1.59% of its 13F portfolio. Dalton Investments is also relatively very bullish on the stock, dishing out 0.74 percent of its 13F equity portfolio to LPG.
Now, key money managers have jumped into Dorian LPG Ltd (NYSE:LPG) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the biggest position in Dorian LPG Ltd (NYSE:LPG). Two Sigma Advisors had $1.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $1.1 million position during the quarter. The other funds with brand new LPG positions are Bruce Kovner's Caxton Associates, Paul Tudor Jones's Tudor Investment Corp, and Alec Litowitz and Ross Laser's Magnetar Capital.
Let's now review hedge fund activity in other stocks similar to Dorian LPG Ltd (NYSE:LPG). We will take a look at Borr Drilling Limited (NYSE:BORR), UMH Properties, Inc (NYSE:UMH), Textainer Group Holdings Limited (NYSE:TGH), and Collier Creek Holdings (NYSE:CCH). This group of stocks' market caps match LPG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BORR,5,35995,5 UMH,8,13726,-1 TGH,9,20758,2 CCH,18,153166,-1 Average,10,55911,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $142 million in LPG's case. Collier Creek Holdings (NYSE:CCH) is the most popular stock in this table. On the other hand Borr Drilling Limited (NYSE:BORR) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Dorian LPG Ltd (NYSE:LPG) is more popular among hedge funds. 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. Hedge funds were also right about betting on LPG as the stock returned 38.5% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.