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Hedge Funds Dumped The Dow Chemical Company (DOW) At The Right Time

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider The Dow Chemical Company (NYSE:DOW) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

The Dow Chemical Company (NYSE:DOW) investors should pay attention to a decrease in enthusiasm from smart money recently. DOW was in 34 hedge funds’ portfolios at the end of December. There were 37 hedge funds in our database with DOW positions at the end of the previous quarter. Our calculations also showed that DOW isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are tons of signals stock market investors put to use to assess publicly traded companies. A couple of the most useful signals are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can outperform the S&P 500 by a healthy margin (see the details here).

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to take a look at the new hedge fund action regarding The Dow Chemical Company (NYSE:DOW).

Hedge fund activity in The Dow Chemical Company (NYSE:DOW)

Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in DOW a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DOW A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Mike Masters’s Masters Capital Management has the number one call position in The Dow Chemical Company (NYSE:DOW), worth close to $105.6 million, amounting to 6% of its total 13F portfolio. On Masters Capital Management’s heels is Winton Capital Management, managed by David Harding, which holds a $30.3 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other peers that are bullish include Leon Cooperman’s Omega Advisors, and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Masters Capital Management allocated the biggest weight to The Dow Chemical Company (NYSE:DOW), around 6% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, earmarking 2.68 percent of its 13F equity portfolio to DOW.

Seeing as The Dow Chemical Company (NYSE:DOW) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of money managers that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Clint Carlson’s Carlson Capital dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, worth close to $36.8 million in stock. Lee Ainslie’s fund, Maverick Capital, also dropped its stock, about $34.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 3 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to The Dow Chemical Company (NYSE:DOW). We will take a look at Autodesk, Inc. (NASDAQ:ADSK), V.F. Corporation (NYSE:VFC), Dollar General Corp. (NYSE:DG), and Manulife Financial Corporation (NYSE:MFC). All of these stocks’ market caps match DOW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADSK 64 3357850 16
VFC 29 770788 -7
DG 50 2075641 1
MFC 19 284486 0
Average 40.5 1622191 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.5 hedge funds with bullish positions and the average amount invested in these stocks was $1622 million. That figure was $165 million in DOW’s case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand Manulife Financial Corporation (NYSE:MFC) is the least popular one with only 19 bullish hedge fund positions. The Dow Chemical Company (NYSE:DOW) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately DOW wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); DOW investors were disappointed as the stock returned -48% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.

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

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