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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Designer Brands Inc. (NYSE:DBI).
Designer Brands Inc. (NYSE:DBI) investors should be aware of an increase in hedge fund interest in recent months. Designer Brands Inc. (NYSE:DBI) was in 23 hedge funds' portfolios at the end of June. The all time high for this statistic is 29. There were 18 hedge funds in our database with DBI positions at the end of the first quarter. Our calculations also showed that DBI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Lee Ainslie of Maverick Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let's check out the key hedge fund action surrounding Designer Brands Inc. (NYSE:DBI).
Do Hedge Funds Think DBI Is A Good Stock To Buy Now?
Heading into the third quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 28% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in DBI a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Masters Capital Management held the most valuable stake in Designer Brands Inc. (NYSE:DBI), which was worth $23.2 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $21.3 million worth of shares. Royce & Associates, Two Sigma Advisors, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Roubaix Capital allocated the biggest weight to Designer Brands Inc. (NYSE:DBI), around 1.81% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, earmarking 0.87 percent of its 13F equity portfolio to DBI.
As one would reasonably expect, specific money managers have jumped into Designer Brands Inc. (NYSE:DBI) headfirst. Royce & Associates, managed by Chuck Royce, created the most valuable position in Designer Brands Inc. (NYSE:DBI). Royce & Associates had $13.4 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $7.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Lee Ainslie's Maverick Capital, Ken Grossman and Glen Schneider's SG Capital Management, and Michael Gelband's ExodusPoint Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Designer Brands Inc. (NYSE:DBI) but similarly valued. We will take a look at Thryv Holdings, Inc. (NASDAQ:THRY), The Lovesac Company (NASDAQ:LOVE), DermTech, Inc. (NASDAQ:DMTK), StoneX Group Inc. (NASDAQ:SNEX), CTS Corporation (NYSE:CTS), H&E Equipment Services, Inc. (NASDAQ:HEES), and Loral Space & Communications Inc (NASDAQ:LORL). This group of stocks' market valuations are closest to DBI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THRY,15,766299,3 LOVE,18,104009,0 DMTK,19,176116,1 SNEX,20,156494,11 CTS,12,96605,-2 HEES,14,58114,0 LORL,15,459863,1 Average,16.1,259643,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $133 million in DBI's case. StoneX Group Inc. (NASDAQ:SNEX) is the most popular stock in this table. On the other hand CTS Corporation (NYSE:CTS) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Designer Brands Inc. (NYSE:DBI) is more popular among hedge funds. Our overall hedge fund sentiment score for DBI is 83.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Unfortunately DBI wasn't nearly as popular as these 5 stocks and hedge funds that were betting on DBI were disappointed as the stock returned -19.2% since the end of the second quarter (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.