Hedge Funds Cautiously Watching Danaos Corporation (DAC)

In this article we will take a look at whether hedge funds think Danaos Corporation (NYSE:DAC) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Danaos Corporation (NYSE:DAC) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of March. At the end of this article we will also compare DAC to other stocks including GlycoMimetics, Inc. (NASDAQ:GLYC), Sientra Inc (NASDAQ:SIEN), and LSI Industries, Inc. (NASDAQ:LYTS) to get a better sense of its popularity.

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.


Israel Englander of Millennium Management

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 peek at the key hedge fund action regarding Danaos Corporation (NYSE:DAC).

Hedge fund activity in Danaos Corporation (NYSE:DAC)

At Q1’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in DAC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jeff Osher’s No Street Capital has the largest position in Danaos Corporation (NYSE:DAC), worth close to $5.4 million, comprising 1.1% of its total 13F portfolio. The second most bullish fund manager is Lonestar Capital Management, managed by Jerome L. Simon, which holds a $2.5 million position; the fund has 2.5% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish contain Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Lonestar Capital Management allocated the biggest weight to Danaos Corporation (NYSE:DAC), around 2.49% of its 13F portfolio. No Street Capital is also relatively very bullish on the stock, setting aside 1.09 percent of its 13F equity portfolio to DAC.

Seeing as Danaos Corporation (NYSE:DAC) has faced falling interest from hedge fund managers, it’s safe to say that there is a sect of fund managers who were dropping their positions entirely heading into Q4. Interestingly, Steve Pei’s Gratia Capital sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising about $2.1 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund dumped about $0.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to Danaos Corporation (NYSE:DAC). We will take a look at GlycoMimetics, Inc. (NASDAQ:GLYC), Sientra Inc (NASDAQ:SIEN), LSI Industries, Inc. (NASDAQ:LYTS), and StoneMor Inc. (NYSE:STON). This group of stocks’ market caps are similar to DAC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GLYC 13 28346 1
SIEN 9 19799 -6
LYTS 11 15848 -3
STON 3 61615 0
Average 9 31402 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $9 million in DAC’s case. GlycoMimetics, Inc. (NASDAQ:GLYC) is the most popular stock in this table. On the other hand StoneMor Inc. (NYSE:STON) is the least popular one with only 3 bullish hedge fund positions. Danaos Corporation (NYSE:DAC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 surpassed the market by 14.2 percentage points. Unfortunately DAC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); DAC investors were disappointed as the stock returned 8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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