You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Dolby Laboratories, Inc. (NYSE:DLB) has seen a decrease in enthusiasm from smart money in recent months. DLB was in 23 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 29 hedge funds in our database with DLB holdings at the end of the previous quarter. Our calculations also showed that DLB isn't among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to go over the fresh hedge fund action encompassing Dolby Laboratories, Inc. (NYSE:DLB).
How have hedgies been trading Dolby Laboratories, Inc. (NYSE:DLB)?
At Q4's end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the second quarter of 2018. By comparison, 20 hedge funds held shares or bullish call options in DLB a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Dolby Laboratories, Inc. (NYSE:DLB), which was worth $151.8 million at the end of the third quarter. On the second spot was Polar Capital which amassed $101.3 million worth of shares. Moreover, MFP Investors, Columbus Circle Investors, and Nantahala Capital Management were also bullish on Dolby Laboratories, Inc. (NYSE:DLB), allocating a large percentage of their portfolios to this stock.
Because Dolby Laboratories, Inc. (NYSE:DLB) has witnessed declining sentiment from the entirety of the hedge funds we track, it's safe to say that there exists a select few money managers that slashed their entire stakes last quarter. Intriguingly, Anand Parekh's Alyeska Investment Group sold off the largest position of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $11.7 million in stock. Joel Greenblatt's fund, Gotham Asset Management, also dumped its stock, about $5.2 million worth. These moves are interesting, as total hedge fund interest was cut by 6 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Dolby Laboratories, Inc. (NYSE:DLB) but similarly valued. We will take a look at Commerce Bancshares, Inc. (NASDAQ:CBSH), Gildan Activewear Inc (NYSE:GIL), EPAM Systems Inc (NYSE:EPAM), and Dr. Reddy's Laboratories Limited (NYSE:RDY). All of these stocks' market caps resemble DLB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBSH,11,82148,-1 GIL,25,511310,7 EPAM,22,80938,1 RDY,10,84442,1 Average,17,189710,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $190 million. That figure was $494 million in DLB's case. Gildan Activewear Inc (NYSE:GIL) is the most popular stock in this table. On the other hand Dr. Reddy's Laboratories Limited (NYSE:RDY) is the least popular one with only 10 bullish hedge fund positions. Dolby Laboratories, Inc. (NYSE:DLB) 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 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately DLB wasn't in this group. Hedge funds that bet on DLB were disappointed as the stock returned 4.7% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.