The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Dollar Tree, Inc. (NASDAQ:DLTR) and determine whether the smart money was really smart about this stock.
Is Dollar Tree, Inc. (NASDAQ:DLTR) a safe investment today? The best stock pickers were taking a bullish view. The number of long hedge fund bets inched up by 18 in recent months. Dollar Tree, Inc. (NASDAQ:DLTR) was in 60 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 65. Our calculations also showed that DLTR isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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 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.
Lee Ainslie of Maverick Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we're going to view the key hedge fund action encompassing Dollar Tree, Inc. (NASDAQ:DLTR).
How are hedge funds trading Dollar Tree, Inc. (NASDAQ:DLTR)?
At second quarter's end, a total of 60 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in DLTR over the last 20 quarters. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Akre Capital Management, managed by Charles Akre, holds the most valuable position in Dollar Tree, Inc. (NASDAQ:DLTR). Akre Capital Management has a $421.7 million position in the stock, comprising 3.2% of its 13F portfolio. On Akre Capital Management's heels is Rivulet Capital, led by Barry Lebovits and Joshua Kuntz, holding a $272.4 million position; 17.7% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism comprise Andrew Immerman and Jeremy Schiffman's Palestra Capital Management, Lee Ainslie's Maverick Capital and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Rivulet Capital allocated the biggest weight to Dollar Tree, Inc. (NASDAQ:DLTR), around 17.74% of its 13F portfolio. BlueDrive Global Investors is also relatively very bullish on the stock, dishing out 13.11 percent of its 13F equity portfolio to DLTR.
With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Stockbridge Partners, managed by Sharlyn C. Heslam, assembled the biggest position in Dollar Tree, Inc. (NASDAQ:DLTR). Stockbridge Partners had $43 million invested in the company at the end of the quarter. Jack Woodruff's Candlestick Capital Management also made a $33.7 million investment in the stock during the quarter. The following funds were also among the new DLTR investors: Alexander Mitchell's Scopus Asset Management, Clint Carlson's Carlson Capital, and Anand Parekh's Alyeska Investment Group.
Let's check out hedge fund activity in other stocks similar to Dollar Tree, Inc. (NASDAQ:DLTR). We will take a look at LyondellBasell Industries NV (NYSE:LYB), Equity Residential (NYSE:EQR), AvalonBay Communities Inc (NYSE:AVB), Tyson Foods, Inc. (NYSE:TSN), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), and Align Technology, Inc. (NASDAQ:ALGN). All of these stocks' market caps are similar to DLTR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LYB,32,509614,-3 EQR,33,555124,9 AVB,34,1283293,4 TSN,37,649082,-4 TLK,4,166226,-3 CRWD,78,3277716,13 ALGN,41,1960739,2 Average,37,1200256,2.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1200 million. That figure was $2268 million in DLTR's case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 4 bullish hedge fund positions. Dollar Tree, Inc. (NASDAQ:DLTR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DLTR is 75.5. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately DLTR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on DLTR were disappointed as the stock returned 10.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.