Is Phoenix Tree Holdings Limited (DNK) A Good Stock To Buy?
The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on September 30th, about a month before the elections. We at Insider Monkey have made an extensive database of more than 817 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Phoenix Tree Holdings Limited (NYSE:DNK) based on those filings.
Hedge fund interest in Phoenix Tree Holdings Limited (NYSE:DNK) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that DNK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 Nantkwest Inc (NASDAQ:NK), Central Securities Corporation (NYSE:CET), and Vapotherm, Inc. (NYSE:VAPO) to gather more data points.
Video: 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
Ryan Tolkin, CIO of Schonfeld Strategic Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website.Keeping this in mind let's take a glance at the recent hedge fund action encompassing Phoenix Tree Holdings Limited (NYSE:DNK).
What does smart money think about Phoenix Tree Holdings Limited (NYSE:DNK)?
At the end of September, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2020. On the other hand, there were a total of 0 hedge funds with a bullish position in DNK 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.
The largest stake in Phoenix Tree Holdings Limited (NYSE:DNK) was held by Tiger Global Management LLC, which reported holding $149.8 million worth of stock at the end of September. It was followed by Schonfeld Strategic Advisors with a $1.7 million position. The only other hedge fund that is bullish on the company was Millennium Management.
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 take a look at hedge fund activity in other stocks - not necessarily in the same industry as Phoenix Tree Holdings Limited (NYSE:DNK) but similarly valued. We will take a look at Nantkwest Inc (NASDAQ:NK), Central Securities Corporation (NYSE:CET), Vapotherm, Inc. (NYSE:VAPO), Criteo SA (NASDAQ:CRTO), PAR Technology Corporation (NYSE:PAR), Guess', Inc. (NYSE:GES), and Antero Resources Corp (NYSE:AR). This group of stocks' market caps resemble DNK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NK,10,6919,2 CET,3,16311,0 VAPO,18,161202,0 CRTO,11,59115,0 PAR,12,281827,2 GES,17,51014,-1 AR,21,203978,0 Average,13.1,111481,0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.1 hedge funds with bullish positions and the average amount invested in these stocks was $111 million. That figure was $152 million in DNK's case. Antero Resources Corp (NYSE:AR) is the most popular stock in this table. On the other hand Central Securities Corporation (NYSE:CET) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Phoenix Tree Holdings Limited (NYSE:DNK) is even less popular than CET. Our overall hedge fund sentiment score for DNK is 35. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards DNK. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd but managed to beat the market again by 15.4 percentage points. Unfortunately DNK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DNK investors were disappointed as the stock returned -8.5% since the end of the third quarter (through 11/23) 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 most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
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