Did Hedge Funds Make The Right Call On Dunkin Brands Group Inc (DNKN) ?
Asma UL Husna
6 min read
Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Dunkin Brands Group Inc (NASDAQ:DNKN) based on that data and determine whether they were really smart about the stock.
Dunkin Brands Group Inc (NASDAQ:DNKN) was in 34 hedge funds' portfolios at the end of March. DNKN has experienced an increase in activity from the world's largest hedge funds of late. There were 31 hedge funds in our database with DNKN positions at the end of the previous quarter. Our calculations also showed that DNKN 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.
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 58 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 36% through May 18th. 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. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. 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. With all of this in mind we're going to analyze the fresh hedge fund action surrounding Dunkin Brands Group Inc (NASDAQ:DNKN).
What have hedge funds been doing with Dunkin Brands Group Inc (NASDAQ:DNKN)?
Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in DNKN a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Two Sigma Advisors, managed by John Overdeck and David Siegel, holds the biggest position in Dunkin Brands Group Inc (NASDAQ:DNKN). Two Sigma Advisors has a $51.4 million position in the stock, comprising 0.2% of its 13F portfolio. On Two Sigma Advisors's heels is Millennium Management, led by Israel Englander, holding a $23.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers that are bullish include Ken Griffin's Citadel Investment Group, Paul Marshall and Ian Wace's Marshall Wace LLP and Renaissance Technologies. In terms of the portfolio weights assigned to each position Solel Partners allocated the biggest weight to Dunkin Brands Group Inc (NASDAQ:DNKN), around 5.78% of its 13F portfolio. Waratah Capital Advisors is also relatively very bullish on the stock, earmarking 0.87 percent of its 13F equity portfolio to DNKN.
Now, some big names have been driving this bullishness. Moore Global Investments, managed by Louis Bacon, created the biggest position in Dunkin Brands Group Inc (NASDAQ:DNKN). Moore Global Investments had $14.4 million invested in the company at the end of the quarter. Craig Peskin and Peter Fleiss's Solel Partners also made a $11.8 million investment in the stock during the quarter. The other funds with brand new DNKN positions are Dmitry Balyasny's Balyasny Asset Management, Brad Dunkley and Blair Levinsky's Waratah Capital Advisors, and Brett Barakett's Tremblant Capital.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Dunkin Brands Group Inc (NASDAQ:DNKN) but similarly valued. These stocks are New York Community Bancorp, Inc. (NYSE:NYCB), CoreSite Realty Corp (NYSE:COR), Chegg Inc (NYSE:CHGG), and Robert Half International Inc. (NYSE:RHI). All of these stocks' market caps are closest to DNKN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NYCB,22,192830,-5 COR,23,267395,2 CHGG,34,302599,-5 RHI,26,247265,3 Average,26.25,252522,-1.25 [/table]
As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $253 million. That figure was $207 million in DNKN's case. Chegg Inc (NYSE:CHGG) is the most popular stock in this table. On the other hand New York Community Bancorp, Inc. (NYSE:NYCB) is the least popular one with only 22 bullish hedge fund positions. Dunkin Brands Group Inc (NASDAQ:DNKN) is not the most popular stock in this group but hedge fund interest is still above average. 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 but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on DNKN, though not to the same extent, as the stock returned 22.8% during the second quarter and outperformed the market as well.
