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Did Hedge Funds Make The Right Call On Dorian LPG Ltd (LPG) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Dorian LPG Ltd (NYSE:LPG) and determine whether hedge funds skillfully traded this stock.

Dorian LPG Ltd (NYSE:LPG) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Our calculations also showed that LPG 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.

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 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.

TUDOR INVESTMENT CORP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s take a gander at the latest hedge fund action encompassing Dorian LPG Ltd (NYSE:LPG).

Hedge fund activity in Dorian LPG Ltd (NYSE:LPG)

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LPG over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is LPG A Good Stock To Buy?

Among these funds, Kensico Capital held the most valuable stake in Dorian LPG Ltd (NYSE:LPG), which was worth $69.8 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $14.6 million worth of shares. GLG Partners, Renaissance Technologies, and Arrowstreet Capital 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 Kensico Capital allocated the biggest weight to Dorian LPG Ltd (NYSE:LPG), around 1.91% of its 13F portfolio. Dalton Investments is also relatively very bullish on the stock, earmarking 0.77 percent of its 13F equity portfolio to LPG.

Due to the fact that Dorian LPG Ltd (NYSE:LPG) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers that decided to sell off their entire stakes in the first quarter. At the top of the heap, Bruce Kovner’s Caxton Associates LP dumped the biggest position of the 750 funds watched by Insider Monkey, valued at close to $1 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also dumped its stock, about $1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 5 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Dorian LPG Ltd (NYSE:LPG) but similarly valued. These stocks are Winmark Corporation (NASDAQ:WINA), Veeco Instruments Inc. (NASDAQ:VECO), Textainer Group Holdings Limited (NYSE:TGH), and DRDGOLD Ltd. (NYSE:DRD). This group of stocks’ market caps resemble LPG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WINA 11 76758 -1
VECO 14 238257 -1
TGH 11 14043 -2
DRD 2 7055 -1
Average 9.5 84028 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $107 million in LPG’s case. Veeco Instruments Inc. (NASDAQ:VECO) is the most popular stock in this table. On the other hand DRDGOLD Ltd. (NYSE:DRD) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Dorian LPG Ltd (NYSE:LPG) 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately LPG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on LPG were disappointed as the stock returned -4.6% since the end of the first quarter 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.

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