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 Danaher Corporation (NYSE:DHR).
Hedge fund interest in Danaher Corporation (NYSE:DHR) shares was flat at the end of last quarter. Overall hedge fund sentiment towards the stock is still at its all time high. Our calculations also showed that DHR isn't among the 30 most popular stocks among hedge funds (see the video below). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Diageo plc (NYSE:DEO), GlaxoSmithKline plc (NYSE:GSK), and PetroChina Company Limited (NYSE:PTR) to gather more data points. 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 some fund managers who are betting on Dow reaching 40000 in a year, 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 check out the key hedge fund action regarding Danaher Corporation (NYSE:DHR).
Hedge fund activity in Danaher Corporation (NYSE:DHR)
At the end of the second quarter, a total of 58 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DHR over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Danaher Corporation (NYSE:DHR) was held by Third Point, which reported holding $530.2 million worth of stock at the end of March. It was followed by AQR Capital Management with a $389.1 million position. Other investors bullish on the company included Akre Capital Management, Impax Asset Management, and Senator Investment Group.
Since Danaher Corporation (NYSE:DHR) has faced a decline in interest from the aggregate hedge fund industry, we can see that there lies a certain "tier" of hedge funds who sold off their positions entirely heading into Q3. Interestingly, Daniel Sundheim's D1 Capital Partners dropped the largest stake of all the hedgies monitored by Insider Monkey, totaling about $158.4 million in stock, and Ricky Sandler's Eminence Capital was right behind this move, as the fund dropped about $111.2 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Danaher Corporation (NYSE:DHR) but similarly valued. We will take a look at Diageo plc (NYSE:DEO), GlaxoSmithKline plc (NYSE:GSK), PetroChina Company Limited (NYSE:PTR), and 3M Company (NYSE:MMM). This group of stocks' market valuations match DHR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DEO,15,847063,-1 GSK,25,1687781,-4 PTR,9,102928,-3 MMM,40,939257,-3 Average,22.25,894257,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $894 million. That figure was $2775 million in DHR's case. 3M Company (NYSE:MMM) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Danaher Corporation (NYSE:DHR) is more popular among hedge funds. 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. Unfortunately DHR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DHR were disappointed as the stock returned 1.2% during the third quarter 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.