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Dillard’s, Inc. (DDS): Hedge Funds In Wait-and-See Mode

Abigail Fisher

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Dillard's, Inc. (NYSE:DDS).

Dillard's, Inc. (NYSE:DDS) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds' portfolios at the end of September. At the end of this article we will also compare DDS to other stocks including Mobile Mini Inc (NASDAQ:MINI), Gray Television, Inc. (NYSE:GTN), and Livongo Health, Inc. (NASDAQ:LVGO) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_25489" align="aligncenter" width="450"] David Einhorn of Greenlight Capital[/caption]

GREENLIGHT CAPITAL

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to go over the recent hedge fund action encompassing Dillard's, Inc. (NYSE:DDS).

Hedge fund activity in Dillard's, Inc. (NYSE:DDS)

Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DDS over the last 17 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 publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mason Hawkins's Southeastern Asset Management has the most valuable position in Dillard's, Inc. (NYSE:DDS), worth close to $134.8 million, corresponding to 2.4% of its total 13F portfolio. Coming in second is AQR Capital Management, managed by Cliff Asness, which holds a $56.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism include David Einhorn's Greenlight Capital, and Philippe Laffont's Coatue Management. In terms of the portfolio weights assigned to each position Southeastern Asset Management allocated the biggest weight to Dillard's, Inc. (NYSE:DDS), around 2.35% of its 13F portfolio. Greenlight Capital is also relatively very bullish on the stock, dishing out 1.41 percent of its 13F equity portfolio to DDS.

Due to the fact that Dillard's, Inc. (NYSE:DDS) has faced bearish sentiment from the smart money, it's easy to see that there was a specific group of funds that elected to cut their full holdings last quarter. It's worth mentioning that Renaissance Technologies dumped the biggest stake of the "upper crust" of funds monitored by Insider Monkey, comprising about $7.8 million in call options, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund cut about $3.1 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Dillard's, Inc. (NYSE:DDS) but similarly valued. We will take a look at Mobile Mini Inc (NASDAQ:MINI), Gray Television, Inc. (NYSE:GTN), Livongo Health, Inc. (NASDAQ:LVGO), and Heartland Financial USA Inc (NASDAQ:HTLF). This group of stocks' market values are closest to DDS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MINI,20,194376,5 GTN,23,206495,-2 LVGO,15,48907,15 HTLF,9,24829,1 Average,16.75,118652,4.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $266 million in DDS's case. Gray Television, Inc. (NYSE:GTN) is the most popular stock in this table. On the other hand Heartland Financial USA Inc (NASDAQ:HTLF) is the least popular one with only 9 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 calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on DDS, though not to the same extent, as the stock returned 8.6% during the first two months of the fourth quarter and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

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