The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Dillard's, Inc. (NYSE:DDS) from the perspective of those elite funds.
Is Dillard's, Inc. (NYSE:DDS) a bargain? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund bets were trimmed by 8 in recent months. Our calculations also showed that DDS isn't among the 30 most popular stocks among hedge funds (see the video below). DDS was in 20 hedge funds' portfolios at the end of June. There were 28 hedge funds in our database with DDS positions at the end of the previous quarter. Video: Click the image to 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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's check out the fresh hedge fund action encompassing Dillard's, Inc. (NYSE:DDS).
How have hedgies been trading Dillard's, Inc. (NYSE:DDS)?
At Q2's end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the first quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in DDS a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Dillard's, Inc. (NYSE:DDS) was held by Southeastern Asset Management, which reported holding $92 million worth of stock at the end of March. It was followed by AQR Capital Management with a $60 million position. Other investors bullish on the company included Greenlight Capital, Citadel Investment Group, and Renaissance Technologies.
Since Dillard's, Inc. (NYSE:DDS) has experienced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there were a few fund managers that elected to cut their entire stakes in the second quarter. It's worth mentioning that Lee Ainslie's Maverick Capital cut the largest position of the "upper crust" of funds watched by Insider Monkey, comprising an estimated $12.9 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dumped about $12.6 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 8 funds in the second quarter.
Let's check out 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 Tanger Factory Outlet Centers Inc. (NYSE:SKT), Arch Coal, Inc. (NYSE:ARCH), Ebix Inc (NASDAQ:EBIX), and ShockWave Medical, Inc. (NASDAQ:SWAV). All of these stocks' market caps are closest to DDS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SKT,14,85927,-1 ARCH,27,364937,-1 EBIX,18,158386,-4 SWAV,7,111937,-7 Average,16.5,180297,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $208 million in DDS's case. Arch Coal, Inc. (NYSE:ARCH) is the most popular stock in this table. On the other hand ShockWave Medical, Inc. (NASDAQ:SWAV) is the least popular one with only 7 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on DDS as the stock returned 6.4% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
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