We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
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. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. What do these smart investors think about Dropbox, Inc. (NASDAQ:DBX)?
Dropbox, Inc. (NASDAQ:DBX) was in 46 hedge funds’ portfolios at the end of the fourth quarter of 2019. DBX investors should pay attention to an increase in support from the world’s most elite money managers recently. There were 42 hedge funds in our database with DBX positions at the end of the previous quarter. Our calculations also showed that DBX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Gil Simon of SoMa Equity Partners
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the fresh hedge fund action encompassing Dropbox, Inc. (NASDAQ:DBX).
What does smart money think about Dropbox, Inc. (NASDAQ:DBX)?
At Q4’s end, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in DBX over the last 18 quarters. 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 Insider Monkey’s hedge fund database, Renaissance Technologies has the number one position in Dropbox, Inc. (NASDAQ:DBX), worth close to $315.2 million, corresponding to 0.2% of its total 13F portfolio. The second most bullish fund manager is D E Shaw, managed by D. E. Shaw, which holds a $104.5 million position; 0.1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism encompass Gil Simon’s SoMa Equity Partners, Cliff Asness’s AQR Capital Management and Christopher R. Hansen’s Valiant Capital. In terms of the portfolio weights assigned to each position SoMa Equity Partners allocated the biggest weight to Dropbox, Inc. (NASDAQ:DBX), around 6.36% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, dishing out 5.82 percent of its 13F equity portfolio to DBX.
As industrywide interest jumped, some big names have been driving this bullishness. Greenvale Capital, managed by Bruce Emery, created the most outsized position in Dropbox, Inc. (NASDAQ:DBX). Greenvale Capital had $11.6 million invested in the company at the end of the quarter. Bobby Yazdani and Babak Poushanchi’s Cota Capital also made a $10.5 million investment in the stock during the quarter. The following funds were also among the new DBX investors: Sander Gerber’s Hudson Bay Capital Management, C. Jonathan Gattman’s Cloverdale Capital Management, and Marc Majzner’s Clearline Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Dropbox, Inc. (NASDAQ:DBX) but similarly valued. These stocks are Algonquin Power & Utilities Corp. (NYSE:AQN), CyrusOne Inc (NASDAQ:CONE), AptarGroup, Inc. (NYSE:ATR), and People’s United Financial, Inc. (NASDAQ:PBCT). This group of stocks’ market valuations are closest to DBX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AQN | 13 | 248252 | -3 |
| CONE | 32 | 345805 | 8 |
| ATR | 25 | 137409 | 2 |
| PBCT | 22 | 125898 | -3 |
| Average | 23 | 214341 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $214 million. That figure was $840 million in DBX’s case. CyrusOne Inc (NASDAQ:CONE) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Dropbox, Inc. (NASDAQ:DBX) is more popular among hedge funds. 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 22.3% in 2020 through March 16th but still managed to beat the market by 3.2 percentage points. Hedge funds were also right about betting on DBX as the stock returned -10.2% so far in Q1 (through March 16th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
