Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Donaldson Company, Inc. (NYSE:DCI)? The smart money sentiment can provide an answer to this question.
The hedge fund interest towards Donaldson Company, Inc. (NYSE:DCI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare DCI to other stocks including Manpowergroup Inc (NYSE:MAN), RenaissanceRe Holdings Ltd. (NYSE:RNR), and TreeHouse Foods Inc. (NYSE:THS) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
With all of this in mind, we’re going to analyze the recent action surrounding Donaldson Company, Inc. (NYSE:DCI).
What does the smart money think about Donaldson Company, Inc. (NYSE:DCI)?
Heading into the fourth quarter of 2016, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, unchanged over the quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in DCI at the beginning of this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Mario Gabelli’s GAMCO Investors has the biggest position in Donaldson Company, Inc. (NYSE:DCI), worth close to $56.3 million, comprising 0.4% of its total 13F portfolio. The second largest stake is held by Ian Simm’s Impax Asset Management, with a $25.3 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism comprise Millennium Management, one of the 10 largest hedge funds in the world, Chuck Royce’s Royce & Associates, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that Impax Asset Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that sold off their entire stakes in the stock during the third quarter. Interestingly, David Blood and Al Gore’s Generation Investment Management sold off the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising about $24.1 million in stock, and Jeffrey Moskowitz’s Harvey Partners was right behind this move, as the fund dropped about $1.7 million worth of shares.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Donaldson Company, Inc. (NYSE:DCI) but similarly valued. These stocks are Manpowergroup Inc (NYSE:MAN), RenaissanceRe Holdings Ltd. (NYSE:RNR), TreeHouse Foods Inc. (NYSE:THS), and Robert Half International Inc. (NYSE:RHI). This group of stocks’ market values match DCI’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $319 million. That figure was $130 million in DCI’s case. Manpowergroup Inc (NYSE:MAN) is the most popular stock in this table. On the other hand RenaissanceRe Holdings Ltd. (NYSE:RNR) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Donaldson Company, Inc. (NYSE:DCI) is even less popular than RenaissanceRe Holdings Ltd. (NYSE:RNR). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.