At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Diversified Healthcare Trust (NASDAQ:DHC) makes for a good investment right now.
Diversified Healthcare Trust (NASDAQ:DHC) has seen a decrease in enthusiasm from smart money of late. Diversified Healthcare Trust (NASDAQ:DHC) was in 12 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 21. Our calculations also showed that DHC isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to take a gander at the recent hedge fund action surrounding Diversified Healthcare Trust (NASDAQ:DHC).
Do Hedge Funds Think DHC Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in DHC over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Millennium Management held the most valuable stake in Diversified Healthcare Trust (NASDAQ:DHC), which was worth $15.6 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $6 million worth of shares. Two Sigma Advisors, Paloma Partners, and AQR Capital 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 Algert Coldiron Investors allocated the biggest weight to Diversified Healthcare Trust (NASDAQ:DHC), around 0.08% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to DHC.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PEAK6 Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified DHC as a viable investment and initiated a position in the stock.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Diversified Healthcare Trust (NASDAQ:DHC) but similarly valued. These stocks are General American Investors Company, Inc. (NYSE:GAM), Sprott Inc. (NYSE:SII), Alector, Inc. (NASDAQ:ALEC), QuinStreet Inc (NASDAQ:QNST), Acutus Medical, Inc. (NASDAQ:AFIB), QAD Inc. (NASDAQ:QADA), and OceanFirst Financial Corp. (NASDAQ:OCFC). This group of stocks’ market caps resemble DHC’s market cap.
|No of HFs with positions
|Total Value of HF Positions (x1000)
|Change in HF Position
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.7 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $25 million in DHC’s case. Alector, Inc. (NASDAQ:ALEC) is the most popular stock in this table. On the other hand General American Investors Company, Inc. (NYSE:GAM) is the least popular one with only 4 bullish hedge fund positions. Diversified Healthcare Trust (NASDAQ:DHC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DHC is 40.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on DHC as the stock returned 32.5% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.