Hedge Funds Are Buying Donaldson Company, Inc. (DCI)

Is Donaldson Company, Inc. (NYSE:DCI) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Donaldson Company, Inc. (NYSE:DCI) a safe investment today? Hedge funds are getting more optimistic. The number of bullish hedge fund bets moved up by 5 lately. Our calculations also showed that DCI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). DCI was in 21 hedge funds’ portfolios at the end of the third quarter of 2019. There were 16 hedge funds in our database with DCI holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most shareholders, hedge funds are perceived as worthless, outdated investment vehicles of yesteryear. While there are over 8000 funds in operation at present, We look at the top tier of this group, approximately 750 funds. These money managers administer the lion’s share of the smart money’s total capital, and by tailing their highest performing equity investments, Insider Monkey has formulated several investment strategies that have historically outperformed the market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Mario Gabelli of GAMCO Investors

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the fresh hedge fund action regarding Donaldson Company, Inc. (NYSE:DCI).

Hedge fund activity in Donaldson Company, Inc. (NYSE:DCI)

At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in DCI a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

More specifically, Impax Asset Management was the largest shareholder of Donaldson Company, Inc. (NYSE:DCI), with a stake worth $43.8 million reported as of the end of September. Trailing Impax Asset Management was GAMCO Investors, which amassed a stake valued at $40.5 million. Arrowstreet Capital, Millennium Management, and Citadel Investment Group 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 Impax Asset Management allocated the biggest weight to Donaldson Company, Inc. (NYSE:DCI), around 0.57% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.39 percent of its 13F equity portfolio to DCI.

As aggregate interest increased, some big names have been driving this bullishness. Renaissance Technologies established the largest position in Donaldson Company, Inc. (NYSE:DCI). Renaissance Technologies had $3.4 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $2.1 million position during the quarter. The following funds were also among the new DCI investors: Hoon Kim’s Quantinno Capital, Matthew Tewksbury’s Stevens Capital Management, and Mike Vranos’s Ellington.

Let’s now review hedge fund activity in other stocks similar to Donaldson Company, Inc. (NYSE:DCI). These stocks are Reliance Steel & Aluminum Co. (NYSE:RS), First American Financial Corporation (NYSE:FAF), American Campus Communities, Inc. (NYSE:ACC), and XPO Logistics Inc (NYSE:XPO). This group of stocks’ market values resemble DCI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RS 22 313426 3
FAF 35 905288 1
ACC 19 407788 2
XPO 23 2709456 -1
Average 24.75 1083990 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $1084 million. That figure was $200 million in DCI’s case. First American Financial Corporation (NYSE:FAF) is the most popular stock in this table. On the other hand American Campus Communities, Inc. (NYSE:ACC) is the least popular one with only 19 bullish hedge fund positions. Donaldson Company, Inc. (NYSE:DCI) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on DCI, though not to the same extent, as the stock returned 7.7% during the first two months of the fourth quarter and outperformed the market.

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