Do Hedge Funds Love Dropbox, Inc. (DBX)?

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 Dropbox, Inc. (NASDAQ:DBX).

Is Dropbox, Inc. (NASDAQ:DBX) a great investment now? The best stock pickers are becoming less hopeful. The number of bullish hedge fund positions were cut by 2 recently. Our calculations also showed that DBX 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). DBX was in 44 hedge funds’ portfolios at the end of March. There were 46 hedge funds in our database with DBX holdings at the end of the previous quarter.

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 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 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.

Gil Simon of SoMa Equity Partners

Gil Simon of SoMa Equity Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. 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. Now let’s check out the fresh hedge fund action surrounding Dropbox, Inc. (NASDAQ:DBX).

Hedge fund activity in Dropbox, Inc. (NASDAQ:DBX)

At the end of the first quarter, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DBX over the last 18 quarters. So, let’s examine 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 Dropbox, Inc. (NASDAQ:DBX), with a stake worth $347.5 million reported as of the end of September. Trailing Renaissance Technologies was SoMa Equity Partners, which amassed a stake valued at $108.6 million. D E Shaw, Greenvale Capital, and Valiant 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 Greenvale Capital allocated the biggest weight to Dropbox, Inc. (NASDAQ:DBX), around 17.57% of its 13F portfolio. SoMa Equity Partners is also relatively very bullish on the stock, setting aside 6.1 percent of its 13F equity portfolio to DBX.

Due to the fact that Dropbox, Inc. (NASDAQ:DBX) has faced bearish sentiment from hedge fund managers, logic holds that there is a sect of hedge funds that elected to cut their positions entirely last quarter. At the top of the heap, Bobby Yazdani and Babak Poushanchi’s Cota Capital dropped the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling close to $10.5 million in stock. Sander Gerber’s fund, Hudson Bay Capital Management, also sold off its stock, about $7.9 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Dropbox, Inc. (NASDAQ:DBX) but similarly valued. These stocks are CNH Industrial NV (NYSE:CNHI), The Carlyle Group Inc. (NASDAQ:CG), Zillow Group Inc (NASDAQ:Z), and Clarivate Analytics Plc (NYSE:CCC). This group of stocks’ market caps are similar to DBX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CNHI 17 156917 1
CG 16 232286 3
Z 37 1368913 0
CCC 28 818151 -17
Average 24.5 644067 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $644 million. That figure was $985 million in DBX’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand The Carlyle Group Inc. (NASDAQ:CG) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Dropbox, Inc. (NASDAQ:DBX) 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 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on DBX, though not to the same extent, as the stock returned 19.7% in Q2 (through May 22nd) and outperformed the market as well.

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