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 DXP Enterprises Inc (NASDAQ:DXPE).
DXP Enterprises Inc (NASDAQ:DXPE) was in 7 hedge funds’ portfolios at the end of March. DXPE investors should be aware of a decrease in activity from the world’s largest hedge funds lately. There were 9 hedge funds in our database with DXPE holdings at the end of the previous quarter. Our calculations also showed that DXPE 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. 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 we’re going to take a gander at the new hedge fund action surrounding DXP Enterprises Inc (NASDAQ:DXPE).
Hedge fund activity in DXP Enterprises Inc (NASDAQ:DXPE)
At Q1’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in DXPE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in DXP Enterprises Inc (NASDAQ:DXPE) was held by Nantahala Capital Management, which reported holding $19.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $2.7 million position. Other investors bullish on the company included Millennium Management, Arrowstreet Capital, and Engineers Gate Manager. In terms of the portfolio weights assigned to each position Nantahala Capital Management allocated the biggest weight to DXP Enterprises Inc (NASDAQ:DXPE), around 0.74% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.08 percent of its 13F equity portfolio to DXPE.
Because DXP Enterprises Inc (NASDAQ:DXPE) has faced falling interest from the smart money, it’s safe to say that there exists a select few money managers that decided to sell off their positions entirely in the first quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group said goodbye to the largest position of the 750 funds followed by Insider Monkey, worth close to $1 million in stock. Roger Ibbotson’s fund, Zebra Capital Management, also said goodbye to its stock, about $0.3 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds in the first quarter.
Let’s check out hedge fund activity in other stocks similar to DXP Enterprises Inc (NASDAQ:DXPE). These stocks are Intelsat S.A. (NYSE:I), CURO Group Holdings Corp. (NYSE:CURO), Ideanomics, Inc. (NASDAQ:IDEX), and Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT). This group of stocks’ market values match DXPE’s market value.
|Ticker||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 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $26 million in DXPE’s case. Intelsat S.A. (NYSE:I) is the most popular stock in this table. On the other hand Ideanomics, Inc. (NASDAQ:IDEX) is the least popular one with only 3 bullish hedge fund positions. DXP Enterprises Inc (NASDAQ:DXPE) 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on DXPE as the stock returned 68.1% during the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.