At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Daktronics, Inc. (NASDAQ:DAKT).
Daktronics, Inc. (NASDAQ:DAKT) was in 16 hedge funds’ portfolios at the end of March. DAKT investors should pay attention to an increase in activity from the world’s largest hedge funds recently. There were 13 hedge funds in our database with DAKT positions at the end of the previous quarter. Our calculations also showed that DAKT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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 58 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.
John Overdeck of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the key hedge fund action surrounding Daktronics, Inc. (NASDAQ:DAKT).
How have hedgies been trading Daktronics, Inc. (NASDAQ:DAKT)?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DAKT over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Daktronics, Inc. (NASDAQ:DAKT), with a stake worth $6.2 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $1.8 million. Arrowstreet Capital, Two Sigma Advisors, and Citadel Investment Group 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 Zebra Capital Management allocated the biggest weight to Daktronics, Inc. (NASDAQ:DAKT), around 0.37% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.13 percent of its 13F equity portfolio to DAKT.
Now, some big names have jumped into Daktronics, Inc. (NASDAQ:DAKT) headfirst. Millennium Management, managed by Israel Englander, established the largest position in Daktronics, Inc. (NASDAQ:DAKT). Millennium Management had $0.3 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $0.2 million position during the quarter. The only other fund with a new position in the stock is Minhua Zhang’s Weld Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Daktronics, Inc. (NASDAQ:DAKT) but similarly valued. These stocks are Spark Energy, Inc. (NASDAQ:SPKE), Siebert Financial Corp. (NASDAQ:SIEB), Home Bancorp, Inc. (NASDAQ:HBCP), and Greenlight Capital Re, Ltd. (NASDAQ:GLRE). This group of stocks’ market caps are similar to DAKT’s market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPKE,10,9894,-1 SIEB,1,82,0 HBCP,4,6073,-4 GLRE,7,5750,-7 Average,5.5,5450,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $13 million in DAKT’s case. Spark Energy, Inc. (NASDAQ:SPKE) is the most popular stock in this table. On the other hand Siebert Financial Corp. (NASDAQ:SIEB) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Daktronics, Inc. (NASDAQ:DAKT) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately DAKT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DAKT were disappointed as the stock returned -17.8% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.