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 DLH Holdings Corp. (NASDAQ:DLHC).
Hedge fund interest in DLH Holdings Corp. (NASDAQ:DLHC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare DLHC to other stocks including Greenpro Capital Corp. (NASDAQ:GRNQ), SPI Energy Co., Ltd. (NASDAQ:SPI), and The Goldfield Corporation (NYSE:GV) to get a better sense of its popularity. 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_267751" align="alignnone" width="600"] Nelson Obus of Wynnefield Capital[/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. Let's take a gander at the key hedge fund action surrounding DLH Holdings Corp. (NASDAQ:DLHC).
What have hedge funds been doing with DLH Holdings Corp. (NASDAQ:DLHC)?
At Q3's end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in DLHC over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Wynnefield Capital held the most valuable stake in DLH Holdings Corp. (NASDAQ:DLHC), which was worth $16.2 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $1.4 million worth of shares. Cove Street Capital, Minerva Advisors, and Millennium Management 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 Wynnefield Capital allocated the biggest weight to DLH Holdings Corp. (NASDAQ:DLHC), around 8.61% of its 13F portfolio. Minerva Advisors is also relatively very bullish on the stock, setting aside 0.21 percent of its 13F equity portfolio to DLHC.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as DLH Holdings Corp. (NASDAQ:DLHC) but similarly valued. These stocks are Greenpro Capital Corp. (NASDAQ:GRNQ), SPI Energy Co., Ltd. (NASDAQ:SPI), The Goldfield Corporation (NYSE:GV), and Tarena International Inc (NASDAQ:TEDU). This group of stocks' market valuations resemble DLHC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GRNQ,1,73,0 SPI,1,37,0 GV,3,8888,0 TEDU,4,1150,-3 Average,2.25,2537,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.25 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $19 million in DLHC's case. Tarena International Inc (NASDAQ:TEDU) is the most popular stock in this table. On the other hand Greenpro Capital Corp. (NASDAQ:GRNQ) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks DLH Holdings Corp. (NASDAQ:DLHC) 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. Unfortunately DLHC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DLHC were disappointed as the stock returned -3.6% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.