Should I Avoid DASAN Zhone Solutions, Inc. (DZSI)?

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 at Insider Monkey have plowed through 817 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th, about a month before the elections. In this article we look at what those investors think of DASAN Zhone Solutions, Inc. (NASDAQ:DZSI).

DASAN Zhone Solutions, Inc. (NASDAQ:DZSI) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. DASAN Zhone Solutions, Inc. (NASDAQ:DZSI) was in 4 hedge funds’ portfolios at the end of September. The all time high for this statistics is 9. There were 6 hedge funds in our database with DZSI positions at the end of the second quarter. Our calculations also showed that DZSI 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.

Chuck Royce

Chuck Royce of Royce & Associates

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 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing DASAN Zhone Solutions, Inc. (NASDAQ:DZSI).

How are hedge funds trading DASAN Zhone Solutions, Inc. (NASDAQ:DZSI)?

Heading into the fourth quarter of 2020, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in DZSI a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is DZSI A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the number one position in DASAN Zhone Solutions, Inc. (NASDAQ:DZSI), worth close to $6.9 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is Portolan Capital Management, led by George McCabe, holding a $3.1 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other peers that hold long positions comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Will Graves’s Boardman Bay Capital Management and . In terms of the portfolio weights assigned to each position Portolan Capital Management allocated the biggest weight to DASAN Zhone Solutions, Inc. (NASDAQ:DZSI), around 0.35% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, dishing out 0.13 percent of its 13F equity portfolio to DZSI.

Because DASAN Zhone Solutions, Inc. (NASDAQ:DZSI) has witnessed falling interest from the smart money, it’s safe to say that there exists a select few money managers that decided to sell off their entire stakes in the third quarter. It’s worth mentioning that Chuck Royce’s Royce & Associates said goodbye to the largest investment of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $6 million in stock, and George McCabe’s Portolan Capital Management was right behind this move, as the fund dropped about $2.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to DASAN Zhone Solutions, Inc. (NASDAQ:DZSI). We will take a look at Ceragon Networks Ltd. (NASDAQ:CRNT), iCAD Inc (NASDAQ:ICAD), T2 Biosystems Inc (NASDAQ:TTOO), Veritiv Corp (NYSE:VRTV), WhiteHorse Finance, Inc. (NASDAQ:WHF), VIA optronics AG (NYSE:VIAO), and Civista Bancshares, Inc. (NASDAQ:CIVB). All of these stocks’ market caps match DZSI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRNT 7 11308 0
ICAD 14 31633 2
TTOO 4 562 0
VRTV 11 52963 1
WHF 3 1895 0
VIAO 10 8592 10
CIVB 11 7096 -1
Average 8.6 16293 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.6 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $11 million in DZSI’s case. iCAD Inc (NASDAQ:ICAD) is the most popular stock in this table. On the other hand WhiteHorse Finance, Inc. (NASDAQ:WHF) is the least popular one with only 3 bullish hedge fund positions. DASAN Zhone Solutions, Inc. (NASDAQ:DZSI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DZSI is 20.9. 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. 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 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on DZSI as the stock returned 38.1% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

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