Hedge Funds Are Cashing Out Of Darling Ingredients Inc. (DAR)

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Darling Ingredients Inc. (NYSE:DAR).

Is Darling Ingredients Inc. (NYSE:DAR) an exceptional investment today? Prominent investors were becoming less hopeful. The number of long hedge fund positions retreated by 3 recently. Darling Ingredients Inc. (NYSE:DAR) was in 33 hedge funds’ portfolios at the end of March. The all time high for this statistic is 36. Our calculations also showed that DAR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 36 hedge funds in our database with DAR positions at the end of the fourth quarter.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Blair Levinsky of Waratah Capital Advisors

Blair Levinsky of Waratah Capital Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s take a gander at the fresh hedge fund action surrounding Darling Ingredients Inc. (NYSE:DAR).

Do Hedge Funds Think DAR Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in DAR 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.

More specifically, Impax Asset Management was the largest shareholder of Darling Ingredients Inc. (NYSE:DAR), with a stake worth $193.1 million reported as of the end of March. Trailing Impax Asset Management was Fisher Asset Management, which amassed a stake valued at $128 million. Marshall Wace LLP, Parsifal Capital Management, and Lansdowne Partners 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 Brightline Capital allocated the biggest weight to Darling Ingredients Inc. (NYSE:DAR), around 14.89% of its 13F portfolio. Parsifal Capital Management is also relatively very bullish on the stock, setting aside 7.01 percent of its 13F equity portfolio to DAR.

Because Darling Ingredients Inc. (NYSE:DAR) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of funds who were dropping their entire stakes in the first quarter. At the top of the heap, Zach Schreiber’s Point State Capital sold off the largest position of all the hedgies tracked by Insider Monkey, totaling about $40.9 million in stock. Todd J. Kantor’s fund, Encompass Capital Advisors, also dumped its stock, about $11.5 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 3 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Darling Ingredients Inc. (NYSE:DAR) but similarly valued. These stocks are Cree, Inc. (NASDAQ:CREE), The Mosaic Company (NYSE:MOS), Bill.com Holdings, Inc. (NYSE:BILL), Lincoln National Corporation (NYSE:LNC), RPM International Inc. (NYSE:RPM), Banco de Chile (NYSE:BCH), and Sibanye Stillwater Limited (NYSE:SBSW). This group of stocks’ market valuations match DAR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CREE 30 605496 -3
MOS 38 944874 -1
BILL 51 2411036 -1
LNC 36 715298 0
RPM 20 79868 -5
BCH 5 53333 2
SBSW 16 272595 -1
Average 28 726071 -1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $726 million. That figure was $757 million in DAR’s case. Bill.com Holdings, Inc. (NYSE:BILL) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 5 bullish hedge fund positions. Darling Ingredients Inc. (NYSE:DAR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DAR is 59.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and beat the market again by 6 percentage points. Unfortunately DAR wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DAR were disappointed as the stock returned -9.4% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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