It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds' favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Dover Corporation (NYSE:DOV) and compare its performance against hedge funds' favorite stocks.
Dover Corporation (NYSE:DOV) was in 30 hedge funds' portfolios at the end of the third quarter of 2019. DOV has experienced a decrease in activity from the world's largest hedge funds lately. There were 32 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 Q3 rankings and see the video at the end of this article for Q2 rankings).
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_258236" align="alignnone" width="600"] 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. Now we're going to review the key hedge fund action surrounding Dover Corporation (NYSE:DOV).
What have hedge funds been doing with Dover Corporation (NYSE:DOV)?
Heading into the fourth quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in DOV over the last 17 quarters. So, let's examine 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 $278.6 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $144.5 million worth of shares. Millennium Management, Scopus Asset Management, and Balyasny Asset 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 Albar Capital allocated the biggest weight to Dover Corporation (NYSE:DOV), around 4.14% of its 13F portfolio. Scopus Asset Management is also relatively very bullish on the stock, dishing out 1.84 percent of its 13F equity portfolio to DOV.
Due to the fact that Dover Corporation (NYSE:DOV) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there lies a certain "tier" of money managers that elected to cut their full holdings in the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital cut the biggest investment of the 750 funds followed by Insider Monkey, comprising close to $16.4 million in stock, and Nick Niell's Arrowgrass Capital Partners was right behind this move, as the fund dropped about $16 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Dover Corporation (NYSE:DOV) but similarly valued. These stocks are Align Technology, Inc. (NASDAQ:ALGN), MGM Resorts International (NYSE:MGM), ArcelorMittal (NYSE:MT), and Quest Diagnostics Incorporated (NYSE:DGX). All of these stocks' market caps are similar to DOV's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALGN,34,1496709,-7 MGM,48,2194471,13 MT,14,192839,-1 DGX,33,561377,9 Average,32.25,1111349,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1111 million. That figure was $731 million in DOV's case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand ArcelorMittal (NYSE:MT) is the least popular one with only 14 bullish hedge fund positions. Dover Corporation (NYSE:DOV) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on DOV as the stock returned 66.6% in 2019 through December 23rd and outperformed the market by an even larger margin. 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.