We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Dover Corporation (NYSE:DOV).
Dover Corporation (NYSE:DOV) investors should pay attention to a decrease in hedge fund interest of late. DOV was in 29 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 35 hedge funds in our database with DOV positions at the end of the previous quarter. Our calculations also showed that DOV isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 S&P 500 ETFs by more than 41 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_26340" align="aligncenter" width="400"] Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now we're going to take a peek at the fresh hedge fund action surrounding Dover Corporation (NYSE:DOV).
Hedge fund activity in Dover Corporation (NYSE:DOV)
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the third quarter of 2019. By comparison, 29 hedge funds held shares or bullish call options in DOV a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Dover Corporation (NYSE:DOV), which was worth $230.5 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $110.8 million worth of shares. Scopus Asset Management, Pzena Investment Management, and GLG Partners 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 Sustainable Insight Capital Management allocated the biggest weight to Dover Corporation (NYSE:DOV), around 2.92% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, dishing out 1.91 percent of its 13F equity portfolio to DOV.
Seeing as Dover Corporation (NYSE:DOV) has experienced bearish sentiment from the smart money, it's easy to see that there exists a select few funds that elected to cut their positions entirely by the end of the third quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management dumped the largest stake of all the hedgies monitored by Insider Monkey, totaling close to $47.2 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $10.3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 6 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks similar to Dover Corporation (NYSE:DOV). These stocks are Conagra Brands, Inc. (NYSE:CAG), Maxim Integrated Products Inc. (NASDAQ:MXIM), WellCare Health Plans, Inc. (NYSE:WCG), and Regions Financial Corporation (NYSE:RF). This group of stocks' market caps resemble DOV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CAG,29,740813,-2 MXIM,32,504696,0 WCG,46,2186486,4 RF,37,468137,10 Average,36,975033,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $975 million. That figure was $547 million in DOV's case. WellCare Health Plans, Inc. (NYSE:WCG) is the most popular stock in this table. On the other hand Conagra Brands, Inc. (NYSE:CAG) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Dover Corporation (NYSE:DOV) is even less popular than CAG. Hedge funds dodged a bullet by taking a bearish stance towards DOV. 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately DOV wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); DOV investors were disappointed as the stock returned -33.8% during the same time period 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 Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.