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We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article, we look at what those funds think of Dillard's, Inc. (NYSE:DDS) based on that data.
Is DDS a good stock to buy now? The best stock pickers were getting less optimistic. The number of bullish hedge fund positions were cut by 3 lately. Dillard's, Inc. (NYSE:DDS) was in 14 hedge funds' portfolios at the end of September. The all time high for this statistic is 29. Our calculations also showed that DDS 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). There were 17 hedge funds in our database with DDS positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
David Einhorn of Greenlight Capital
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 15 best blue chip stocks 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. 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. With all of this in mind we're going to take a look at the fresh hedge fund action surrounding Dillard's, Inc. (NYSE:DDS).
Do Hedge Funds Think DDS Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the second quarter of 2020. On the other hand, there were a total of 22 hedge funds with a bullish position in DDS a year ago. So, let's review 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, Stephen Mildenhall's Contrarius Investment Management has the number one position in Dillard's, Inc. (NYSE:DDS), worth close to $11.6 million, accounting for 1% of its total 13F portfolio. On Contrarius Investment Management's heels is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $9.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish encompass David Einhorn's Greenlight Capital, and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Contrarius Investment Management allocated the biggest weight to Dillard's, Inc. (NYSE:DDS), around 1.02% of its 13F portfolio. Greenlight Capital is also relatively very bullish on the stock, dishing out 0.6 percent of its 13F equity portfolio to DDS.
Because Dillard's, Inc. (NYSE:DDS) has experienced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there exists a select few hedgies that slashed their full holdings in the third quarter. Interestingly, D. E. Shaw's D E Shaw dumped the biggest stake of all the hedgies watched by Insider Monkey, valued at close to $1.8 million in stock, and Lee Ainslie's Maverick Capital was right behind this move, as the fund dropped about $1.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to Dillard's, Inc. (NYSE:DDS). These stocks are Green Brick Partners Inc (NASDAQ:GRBK), United Natural Foods, Inc. (NYSE:UNFI), Boot Barn Holdings Inc (NYSE:BOOT), Embraer SA (NYSE:ERJ), Monarch Casino & Resort, Inc. (NASDAQ:MCRI), Alexander & Baldwin Inc (NYSE:ALEX), and GreenSky, Inc. (NASDAQ:GSKY). This group of stocks' market caps match DDS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GRBK,13,422136,-8 UNFI,21,59706,0 BOOT,13,33051,0 ERJ,10,40881,-4 MCRI,10,86745,-4 ALEX,15,33459,2 GSKY,12,23357,-1 Average,13.4,99905,-2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.4 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $39 million in DDS's case. United Natural Foods, Inc. (NYSE:UNFI) is the most popular stock in this table. On the other hand Embraer SA (NYSE:ERJ) is the least popular one with only 10 bullish hedge fund positions. Dillard's, Inc. (NYSE:DDS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DDS is 34.7. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on DDS as the stock returned 43.6% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.