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Dell Technologies Inc. (DELL): Hedge Funds Taking Some Chips Off The Table

In this article we will take a look at whether hedge funds think Dell Technologies Inc. (NYSE:DELL) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Dell Technologies Inc. (NYSE:DELL) a bargain? Investors who are in the know are becoming less hopeful. The number of bullish hedge fund bets fell by 2 recently. Our calculations also showed that DELL 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). DELL was in 39 hedge funds’ portfolios at the end of March. There were 41 hedge funds in our database with DELL positions at the end of the previous quarter.

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 51 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.

Jeffrey Tannenbaum of Fir Tree

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the fresh hedge fund action regarding Dell Technologies Inc. (NYSE:DELL).

How are hedge funds trading Dell Technologies Inc. (NYSE:DELL)?

At the end of the first quarter, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in DELL over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

The largest stake in Dell Technologies Inc. (NYSE:DELL) was held by Elliott Management, which reported holding $591.5 million worth of stock at the end of September. It was followed by Canyon Capital Advisors with a $335.2 million position. Other investors bullish on the company included Lyrical Asset Management, Elliott Management, and Lakewood Capital Management. In terms of the portfolio weights assigned to each position HighVista Strategies allocated the biggest weight to Dell Technologies Inc. (NYSE:DELL), around 24.93% of its 13F portfolio. Canyon Capital Advisors is also relatively very bullish on the stock, dishing out 11.84 percent of its 13F equity portfolio to DELL.

Because Dell Technologies Inc. (NYSE:DELL) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there exists a select few fund managers who sold off their entire stakes in the third quarter. Interestingly, David Rosen’s Rubric Capital Management sold off the biggest investment of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $43.7 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dumped about $29.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Dell Technologies Inc. (NYSE:DELL). We will take a look at Emerson Electric Co. (NYSE:EMR), The Allstate Corporation (NYSE:ALL), Electronic Arts Inc. (NASDAQ:EA), and Metlife Inc (NYSE:MET). All of these stocks’ market caps match DELL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EMR 33 434014 -8
ALL 43 1535993 6
EA 73 1987020 5
MET 34 1018231 -4
Average 45.75 1243815 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.75 hedge funds with bullish positions and the average amount invested in these stocks was $1244 million. That figure was $1968 million in DELL’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Emerson Electric Co. (NYSE:EMR) is the least popular one with only 33 bullish hedge fund positions. Dell Technologies Inc. (NYSE:DELL) is not the least popular stock in this group but hedge fund interest is still below average. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on DELL as the stock returned 25.5% during the second quarter and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.