We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Drive Shack Inc. (NYSE:DS).
Is DS a good stock to buy now? Hedge funds were taking a pessimistic view. The number of bullish hedge fund positions fell by 2 recently. Drive Shack Inc. (NYSE:DS) was in 7 hedge funds’ portfolios at the end of September. The all time high for this statistics is 13. Our calculations also showed that DS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 website. Keeping this in mind we’re going to check out the latest hedge fund action encompassing Drive Shack Inc. (NYSE:DS).
What have hedge funds been doing with Drive Shack Inc. (NYSE:DS)?
At third quarter’s end, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from the second quarter of 2020. On the other hand, there were a total of 5 hedge funds with a bullish position in DS a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of Drive Shack Inc. (NYSE:DS), with a stake worth $0.8 million reported as of the end of September. Trailing Arrowstreet Capital was Invenomic Capital Management, which amassed a stake valued at $0.2 million. D E Shaw, Citadel Investment Group, and Millennium Management 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 Invenomic Capital Management allocated the biggest weight to Drive Shack Inc. (NYSE:DS), around 0.12% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, dishing out 0.0013 percent of its 13F equity portfolio to DS.
Since Drive Shack Inc. (NYSE:DS) has experienced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of fund managers that slashed their entire stakes heading into Q4. It’s worth mentioning that Donald Sussman’s Paloma Partners dropped the largest stake of the 750 funds watched by Insider Monkey, valued at an estimated $0.6 million in stock, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital was right behind this move, as the fund cut about $0 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Drive Shack Inc. (NYSE:DS) but similarly valued. These stocks are Advanced Emissions Solutions, Inc. (NASDAQ:ADES), Idera Pharmaceuticals Inc (NASDAQ:IDRA), Rockwell Medical Inc (NASDAQ:RMTI), First Eagle Alternative Capital BDC, Inc. (NASDAQ:FCRD), Galmed Pharmaceuticals Ltd (NASDAQ:GLMD), Armstrong Flooring, Inc. (NYSE:AFI), and Consumer Portfolio Services, Inc. (NASDAQ:CPSS). This group of stocks’ market caps match DS’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.3 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $1 million in DS’s case. Armstrong Flooring, Inc. (NYSE:AFI) is the most popular stock in this table. On the other hand Consumer Portfolio Services, Inc. (NASDAQ:CPSS) is the least popular one with only 1 bullish hedge fund positions. Drive Shack Inc. (NYSE:DS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DS is 46.4. 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. 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 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on DS as the stock returned 57.1% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.