Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. 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 Daseke, Inc. (NASDAQ:DSKE).
Is Daseke, Inc. (NASDAQ:DSKE) a buy right now? The smart money is in a bearish mood. The number of bullish hedge fund positions were trimmed by 2 lately. Our calculations also showed that DSKE 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.
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 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.
[caption id="attachment_26340" align="aligncenter" width="467"] Ken Griffin of Citadel Investment Group[/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. With all of this in mind let's take a peek at the key hedge fund action encompassing Daseke, Inc. (NASDAQ:DSKE).
What have hedge funds been doing with Daseke, Inc. (NASDAQ:DSKE)?
At Q3's end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DSKE 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.
Of the funds tracked by Insider Monkey, Renaissance Technologies has the biggest position in Daseke, Inc. (NASDAQ:DSKE), worth close to $0.6 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $0.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish consist of Paul Tudor Jones's Tudor Investment Corp, Israel Englander's Millennium Management and David E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Tudor Investment Corp allocated the biggest weight to Daseke, Inc. (NASDAQ:DSKE), around 0.0044% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0005 percent of its 13F equity portfolio to DSKE.
Judging by the fact that Daseke, Inc. (NASDAQ:DSKE) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of fund managers who sold off their entire stakes in the third quarter. At the top of the heap, Phil Frohlich's Prescott Group Capital Management cut the biggest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $0.8 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund dropped about $0.5 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Daseke, Inc. (NASDAQ:DSKE). We will take a look at Acasti Pharma Inc. (NASDAQ:ACST), Horizon Technology Finance Corporation (NASDAQ:HRZN), Nature's Sunshine Products, Inc. (NASDAQ:NATR), and Plymouth Industrial REIT, Inc. (NYSE:PLYM). This group of stocks' market caps are closest to DSKE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACST,6,5198,4 HRZN,4,2022,3 NATR,6,65705,0 PLYM,7,16015,5 Average,5.75,22235,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $1 million in DSKE's case. Plymouth Industrial REIT, Inc. (NYSE:PLYM) is the most popular stock in this table. On the other hand Horizon Technology Finance Corporation (NASDAQ:HRZN) is the least popular one with only 4 bullish hedge fund positions. Daseke, Inc. (NASDAQ:DSKE) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on DSKE as the stock returned 18% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.