We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Domino’s Pizza, Inc. (NYSE:DPZ) and determine whether hedge funds skillfully traded this stock.
Is Domino’s Pizza, Inc. (NYSE:DPZ) going to take off soon? Prominent investors were taking a bullish view. The number of long hedge fund bets improved by 14 lately. Our calculations also showed that DPZ isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the recent hedge fund action regarding Domino’s Pizza, Inc. (NYSE:DPZ).
What have hedge funds been doing with Domino’s Pizza, Inc. (NYSE:DPZ)?
Heading into the second quarter of 2020, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 45% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DPZ over the last 18 quarters. So, let’s check out 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, holds the number one position in Domino’s Pizza, Inc. (NYSE:DPZ). Renaissance Technologies has a $642.2 million position in the stock, comprising 0.6% of its 13F portfolio. Sitting at the No. 2 spot is Fisher Asset Management, managed by Ken Fisher, which holds a $222.3 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism encompass Gabriel Plotkin’s Melvin Capital Management, Ken Griffin’s Citadel Investment Group and Robert Pitts’s Steadfast Capital Management. In terms of the portfolio weights assigned to each position Crestwood Capital Management allocated the biggest weight to Domino’s Pizza, Inc. (NYSE:DPZ), around 6.89% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, setting aside 3.43 percent of its 13F equity portfolio to DPZ.
As industrywide interest jumped, some big names have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, initiated the most outsized position in Domino’s Pizza, Inc. (NYSE:DPZ). Melvin Capital Management had $210.6 million invested in the company at the end of the quarter. James Parsons’s Junto Capital Management also initiated a $47.6 million position during the quarter. The following funds were also among the new DPZ investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Jack Woodruff’s Candlestick Capital Management, and Ben Gambill’s Tiger Eye Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Domino’s Pizza, Inc. (NYSE:DPZ) but similarly valued. We will take a look at Weyerhaeuser Co. (NYSE:WY), The Hartford Financial Services Group, Inc. (NYSE:HIG), CBRE Group, Inc. (NYSE:CBRE), and MarketAxess Holdings Inc. (NASDAQ:MKTX). This group of stocks’ market caps are similar to DPZ’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 33 hedge funds with bullish positions and the average amount invested in these stocks was $690 million. That figure was $1760 million in DPZ’s case. The Hartford Financial Services Group, Inc. (NYSE:HIG) is the most popular stock in this table. On the other hand MarketAxess Holdings Inc. (NASDAQ:MKTX) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Domino’s Pizza, Inc. (NYSE:DPZ) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately DPZ wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DPZ were disappointed as the stock returned 14.2% 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.
Disclosure: None. This article was originally published at Insider Monkey.